Turkish lira crisis: What's caused Ankara's economic woes?

Turkish lira crisis: What's caused Ankara's economic woes?
2 min read
21 December, 2021
The lira reached a high value of $0.086 on Tuesday, though this is still far below the $0.26 it was worth in December 2017, before Turkey's economic crisis began.
Many partly fault President Erdogan's economic views for Turkey's crisis [Ali Balikci/Anadolu Agency/Getty]

Turkey's lira climbed dramatically on Monday and Tuesday after it previously halved in value from late September to this Sunday.

This lira shot up from being worth an all-time low of US$0.055 to being valued at $0.074 in under four hours on Monday. It reached a high of $0.086 on Tuesday, up more than 56 percent on its rock-bottom value the day before.

Even so, the lira is still far below its 2021 high of $0.14, where it hovered in late January and February.

This jump on Monday and Tuesday came after President Recep Tayyip Erdogan revealed a scheme designed to protect lira deposits against changes in the currency's value.

The Turkish economy has been struggling for years as part of a combined debt and currency value crisis which began in 2018. The lira had been worth $0.26 in December 2017.

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This was partly sparked by a current account deficit, meaning Ankara was bringing in more goods and services than it was selling abroad.

Erdogan has repeatedly pushed his country's central bank to reduce interest rates, claiming this will help fix the inflation issue, though economists reject this understanding.

Most recently, interest rates were dropped for the fourth month in a row on Thursday. The currency's currency instantly slumped to what was then an all-time low versus the US dollar.

Erdogan, who has justified his economic positioning using Islam, which opposes financial interest, has removed officials at the central bank during Turkey's economic crisis. This includes governor Naci Agbal in March 2021, who had increased interest rates in a bit to cut inflation two days prior.

Erdogan has been accused of interfering with the central bank's autonomy. In October, year-on-year inflation was projected to be just under 17 percent for 2021, up on 12.3 percent from last year.

This has seriously harmed not just business, but also household finances for everyday people.

Four family members struggling to survive on one set of wages took their own lives in November 2019.

While many linked their deaths with the country's economic woes, supporters of Erdogan and his ruling Justice and Development Party denied there was an association.