Erdoğan must deal with ’junk’ currency to wield power


President Recep Tayyip Erdoğan must deal with Turkey's “junk currency” if he is to exert real power in the world.

The lira’s recent plunge against the dollar, prompted by Erdoğan’s actions and reactions, has exposed Turkey’s archilles heel, writes Steve Hanke, professor of applied economics at the John Hopkins University and adviser on currency reform to global leaders including former U.S. President Ronald Reagan. Gold may provide an answer to deal with the currency’s woes, he said in a commentary for Forbes.

No country with a volatile and inherently weak currency has ever projected and exercised real power. The lira will eventually bring the Turkish economy and Erdoğan down to earth.

Turks, burned in the past by currency volatility, have been swapping lira for dollars since 2010, Hanke points out. Deposits in foreign currency now account for about 70 percent of total deposits.

The net foreign reserves of the central bank have plummeted since 2009 from over 100% of reserve money into negative territory. The bank has replaced disappearing foreign assets with lira, he said.

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