The value of the Turkish Lira is in absolute free fall, having lost 50% of its value since September. This drop-off started when President Recep Erdogan ordered the Turkish central bank to slash rates to combat runaway inflation. You heard that right- interest rates are being cut in Turkey to address inflation! To be precise, four interest rate cuts have been implemented since September. For perspective, central banks around the world institute controlled rate hikes to combat inflation. President Erdogan removes any government banker, economist, or minister who disagrees with his economic policies or otherwise challenges his thinking. Adding fuel to the fire, the Turkish government is printing money freely.
The Wall Street Journal article below gives perspective and has a great chart highlighting the precipitous year-to-date decline of the Turkish Lira through December 16th, when it reached 15.6 to the dollar. At the start of 2021, it took only 7.4 lira to exchange for a dollar and three years ago it was right around 3-to-1. As of today, the Turkish lira hit a new record low of 17.8 to the dollar. Ordinary citizens are obviously feeling the pinch and scramble to convert paychecks paid in lira into dollars, euros, gold or cryptos in a desperate attempt to preserve wealth.
The U.S. economy is exponentially larger than Turkey’s and the dollar is still the reserve currency of the world, but there are lessons here for those who promote Modern Monetary Theory (MMT) and the idea that money can simply be printed indefinitely and government deficits don’t matter.
P.S.- Here’s a good economic brief on MMT from the Richmond Fed; MMT and Government Finance: You Can’t Always Get What You Want
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