Since the beginning of 2018, the lira has fallen in price by 40% and August price is $7.24 USD/ 1 TRY. This is the biggest drop in the Turkish currency in the history of its economy. The situation in Turkey remains unstable because of the financial crisis that has begun in the country. World analysts, including Standard & Poor’s, believe that this crisis will affect not only Turkey but the entire world economy.
The Position of Turkey
Turkish President Recep Tayyip Erdogan believes that the Turkish economy was attacked with the goal of “putting Turkey and its citizens on its knees.” This was stated by the President of Turkey in his speech:
“There is no difference between attacking our economy and attacking our call for prayer or our flag, the goal is the same: their goal is to put Turkey and our nation on their knees, take in slavery and force them to act by someone else’s orders. The forces that believe that they will be able to destroy Turkey by manipulating the foreign exchange market, they will soon realize how wrong they were…”
– Erdogan said.
Erdogan also rejected the call to raise interest rates to try to ease the crisis. Instead, Erdogan lashed out at the US, which further exacerbated the situation in the currency markets. The President of Turkey urged citizens to sell dollars and euros to save the national currency.
The position of the USA
As is known, relations between the countries deteriorated due to Trump’s decision to raise duties on the import of aluminum and steel from Turkey to 20% and 50%. This provoked a sharp drop in the Turkish lira. Similarly, the deterioration of relations between Turkey and the United States was influenced by the refusal of the Turkish authorities to release the American pastor Andrew Brunson, suspected of involvement in a terrorist organization, as well as the mutual increase in duties on various groups of goods. In addition, US President Donald Trump said about new sanctions against Turkey if Turkey doesn’t comply with US demands for the release of Brunson. According to Trump, the turks used the americans for many years and now the United States will cut spending on Turkey.
Risks of the world currency crisis
The trade conflict between the US and Turkey led to the collapse of the Turkish lira and the crisis in the country. This, in turn, worried investors around the world and struck the national currencies of many developing countries, including India and Russia. Also affected by the euro – it fell to the dollar to a minimum in 26 months due to the fact that European banks have invested a lot of money in the Turkish economy.
Analysts admit that the devaluation of the lira will provoke a large-scale currency crisis. Some experts, including the authoritative Standard & Poor’s, already advise investors to abandon their investments in emerging markets altogether. Investors themselves are concerned about the fact that the government does not take any action to solve the problem.
Based on the positions of both sides and statements of world analysts, a sharp drop in the Turkish lira is very likely to lead to a global currency crisis. The world financial community is waiting for constructive actions to restore the Turkish currency in the near future, which can help to avoid more global consequences. Lets keep in mind that this kind of crisis wasn’t a single case: Argentina’s crisis in August 2018, Venezuela humanitarian crisis in April 2018.