This is a great post from my friend and FourStar advisor Fred Crossman in his Collar Stocks blog on the breathtaking freefall in the value of the Turkish Lira. Since the beginning of the year, the Lira has lost 50% of its value compared to the dollar- it took ~7.5 Lira to get a dollar on New Years 2021 and went as low as 18.4 Lira as of yesterday. Imagine if your purchasing power declined by over 50% in less than a year. There would be riots!
News came across the wire today that Turkish president Erdogan has come up with a new plan to help shore up the value of his currency with a government guarantee on Lira deposits against foreign-exchange (FOREX) depreciation. This is like the Turkish government giving depositors a call option on their Lira deposits. Details were scarce, so there’s really no telling how this plan will work, though it did help raise the value of the Lira, at least temporarily. It is Erdogan economic policies that have been the main cause of the Lira’s decline.
The real question here- why are they actually lowering interest rates in Turkey to fight inflation??
With inflation in Turkey running at 20% and expected to rise to 30%+, a doubling of the minimum wage and the start of bank runs, we’ll likely see a continued valuation whipsaw of the Turkish Lira. Enjoy this take from Collar Stocks and let me know what you think!
~ Brian Kasal- The Leadership Matrix
Added bonus- a story on the topic from the Financial Times- Turkish lira gyrates as Erdogan vows ‘no going back’ on rate cuts
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