Economist PhD. M. Murat Kubilay:
It is desired to use instruments that are not foreign currency but provide foreign currency-like returns. Thus, instead of foreign currency banknotes with international counterparts, financial instruments that are accepted only in Turkey but that yield as much as real foreign currency are offered to investors. Currency-indexed bonds for corporations and foreign exchange-yielding deposits for individuals come to the fore.
Although it is not known exactly what kind of contract it will be; probably, the additional yield of foreign currency, if any, will be added on top of the TL deposit yield (if any, it will not be deducted). Of course, this situation will leave a serious burden on the banks if the exchange rate continues to rise. This part will be undertaken by the Treasury.”
The critical point of the system is trust; that is, the answer of the citizen to the question of whether it is a foreign currency or a foreign currency-indexed but TL-denominated instrument. If direct demand for foreign currency persists, then the interest burden that will have to be paid on these bonds and deposits increases greatly; First, the state budget deteriorates, and then inflation explodes due to the TL created to be paid.
If this demand stops, the exchange rate increase is stopped without burdening the Treasury; Only banks pay the ordinary TL deposit interest burden. In other words, the main thing is to be convinced that there will be no difference in return between real currency and foreign currency equivalents and ignore the fact that there is no international validity.”
For this reason, it is difficult to completely stop the exchange rate increase with such instruments, but it is possible to slow it down, but at the expense of the deterioration in the budget and the increase in inflation.
Thus, the possibility of the financial system to be shaken by excessive physical foreign exchange demand and as a result, the concern of capital control falls off the agenda. However, since the whole system is based on trust, Erdogan is likely to implement a populist policy in the upcoming period, and there is a general opinion in society about Erdogan's financial preferences, the results desired by the government will probably not be achieved. In summary, a dissolution in existing foreign currency deposits is difficult, but a slowdown in new demand for foreign currency is likely.”
www.diken.com.tr
Durmus Yilmaz, former Central Bank Governor:
The government said, “We will implement the Turkish Economy Model”. His goal was to increase exports over worthless Turkish lira. They deliberately lowered the value of the Turkish lira. The depreciation of the lira was the target, but at this point they saw that this was a dead end. A nail has been hammered into the coffin of the Turkish Economy Model.
They returned without saying we came back, they returned to orthodox policies. This is it. They left the main road and took a side road, but the road they entered is a dead end. This is an interest rate hike. It is a 'u-turn' from classical AKP policies. But this is a policy that brings with it some problems. An implied rate hike was made. They can make a political statement from here. Just because we lowered both the interest rate and the exchange rate. How they can sell it, if they sell it, we will see in time.
The market did not buy these statements of Erdogan, there is a definite intervention in the market right now. We will see the truth in the morning. I think we will continue where we left off. This is a buying opportunity. It is nothing else. I think this business will continue from where it left off.”
Alpaslan Çakar, President of the Banks Association of Turkey, explained the exchange rate difference system for TL deposits announced by President Erdoğan.
Çakar,'' Banks will open an account indexed to foreign currency. You will receive the interest-bearing balance at the end of the maturity date and the exchange rate level of that day, whichever is higher at the point where your money comes. The exchange rate difference to TL deposits is valid for real person customers, not legal entities,'' he said.
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