Turkey is one of the famous countries for tourism, the second largest army of NATO after the U.S, and the world’s 20th Country by GDP in 2021. The currency of Turkey is the Turkish Lira which was worth 7.03 against 1 USD on 14 February 2021. But now the Turkish Lira is crashing for mainly 2 reasons. The Turkish Lira is now worth 13.73 against 1 USD on 3 December 2021 but why? What are the 2 Reasons? Let’s discuss.
What are the 2 main reasons behind the Lira crash?
1. Turkey’s central bank cut interest rates
2. Turkey is now in FATF’s Grey List
How do the central bank’s Interest rates affect the currency?
See, when the central bank cut interest rates that means you don’t have to pay much interest rates to get loans compared to before.
Let’s imagine that you want to take a loan to start a business and you go to the bank to request a loan and the interest rate of the bank is much more which you can’t pay back then you may not take the loan but if the bank’s Interest rate is lower and you can pay back to the bank then it is easy to get the Money. That is what happens in Turkey.
Turkish central bank cut the interest rate for the loan so that more people can get the loan money and start a new business.
When a central bank lowers interest rates, money generally becomes less expensive to borrow and therefore less valuable relative to other currencies. This is the main reason why the Turkish lira is crashing.
How does FATF’s Grey List affect the country’s economy?
In November 2021, FATF put Turkey on the grey list. When FATF put any country on the grey list then foreign investors don’t prefer to invest their money in that country and it became hard for any country on the Grey list to get any foreign Loans.
So, the country has to print more money to run the country or to spend money to do any type of project. And when the country prints more money eventually the value of the currency crash.
This is what also happened with Iran’s and Pakistan’s currencies. Iran’s currency is now 42275.00 against 1 USD. And Pakistan’s currency is now 177.13 against 1 USD. Iran is on the black list of the FATF and Pakistan is on the Grey List.
What is the reaction of the Turkish people?
Turkish people’s reaction to this is very bad because of the inflation which they are facing. Turkey’s economy is heavily dependent upon imports for producing goods from foods to textiles, so the rise of the dollar against the lira has a direct impact on the price of consumer products.
People are now moving to farms so that the country should not need to import things from other countries. They are trying to avoid eating imported things and want to be independent. As Lira is crashing the young generation is thinking to get out of the country and work somewhere else.
The young generation of Turkey is thinking that the leader and politicians are playing with them and the citizens are paying the price and mostly the young generation
One Turkish Lira is today 5.46 INR
One Turkish Lira is today 12.75 PKR
One Turkish Lira is today 0.072 USD