As the election approaches and the Turkish president tries to guard the Turkish lira, the Bank of Turkey is once again under the guidance of Tayyip Erdogan
Turkey's central bank is considering a number of other measures to prevent banks from selling Turkish currency derivatives to their customers
It offers the country's exporting businesses a favorable exchange rate to convert their export earnings into Turkish currency.
As the elections approach and the Turkish president tries to guard the Turkish lira, the Bank of Turkey under the guidance of Tayyip Erdogan is again resorting to various maneuvers to prevent further slide of the Turkish currency. The latest in the series is its decision to offer the country's exporters a favorable exchange rate to convert their export earnings into Turkish currency. This exchange rate, which will have a 2% bonus, will be valid under the condition that the profits from this favorable transaction will be kept for an as yet unspecified period of time in Turkish lira. According to a relevant announcement published in the government's official newspaper, the mechanism will only apply to those exporters who “undertake the commitment” not to buy hard currency for a period of time, which has not yet been determined and is expected to be announced soon by the monetary policy authority of Turkey.
According to Bloomberg, there have been previous complaints from Turkey's export companies, who characterized the Turkish lira as “overvalued” and expressed fears that their products risk losing their competitiveness abroad. Some industry groups have even called directly for the devaluation of the Turkish currency or the implementation of an alternative exchange rate, intensifying pressure on the government in the midst of election season. It should be noted that the Erdogan government has long ago imposed on export companies the obligation to transfer to the central bank 40% of the revenue they collect in hard currency from their sales abroad and to receive Turkish lira in return. With the new arrangement they are given the opportunity to benefit from a more favorable exchange rate if they keep the remaining 60% of their income in Turkish lira. In this case, they will, after all, benefit from the benefits of the so-called “protected” accounts. These are the accounts that the Erdogan government has promised to replace in the percentage they lose due to the exchange rate.
As regards, however, the exporting companies that do not keep their commitment, they will henceforth be obliged to make payments to the central bank at a different exchange rate to which the overnight lending rate will be added. In announcing the new unorthodox policy, the Bank of Turkey stressed that it was a decision as part of its strategy to “lirize” the economy, meaning the government's policy to encourage the use of the domestic currency, a cornerstone of an effort to support the currency. . At the same time, the central bank is considering a series of other measures aimed at preventing the sale of Turkish currency derivatives by banks to their customers in order to limit the demand for dollars. According to sources who spoke to Bloomberg on condition of anonymity, the relevant measures are currently under study and the central bank is planning the details that have not yet been decided. The pound has fallen 1% against the dollar since the start of the year. Over the past year, however, the Turkish currency has lost 30% of its value against the dollar, marking the worst performance among emerging market currencies.
