Turkey discusses currency swaps with foreign central banks

Turkey is holding talks with foreign central banks on new swap agreements, Central Bank Governor Murat Uysal said on Sunday, as the country seeks funds in dealing with the economic fallout of the COVID-19 pandemic.

Turkey’s confirmed coronavirus cases on Saturday rose to 82,329, overtaking its hard-hit neighbour, Iran, as having the highest total in the Middle East to date. The contagion has prompted the Turkish government to tighten restrictions, which have forced businesses to shut down and has left millions of workers unemployed. 

While the state is compensating workers with a small daily stipend, it is faced with a total private and public foreign debt instalment of $172 billion due to be repaid this year. Simultaneously, the Turkish central bank’s net hard currency reserves have fallen to $27 billion – an 11-month low.

“We have had ongoing swap agreements with some countries for a long time to support trade in local currencies,’’ state-run Anadolu news agency quoted Uysal as saying. “With that, we are also holding talks with central banks to achieve new swap agreements and strengthen our existing cooperation.’’ 

Ankara’s bid to the U.S. Federal Reserve in March failed to yield results, excluding Turkey from a list of 20 countries approved for its swap lines.

However, Turkish officials have continued talks with Washington to secure a Fed swap line, extending a similar discussion with the Bank of England to cover more ground, Reuters reported on Sunday.

A swap line is a temporary reciprocal currency arrangement that allows a central bank to obtain foreign currency liquidity from the central bank that issues it.

Turkey’s foreign trade, tourism and transportation have all been been strained by the pandemic, Uysal said, adding that exports to Europe, the country’s largest market, were hit particularly hard.

The central bank governor also said the drop in demand for air travel in mid-March had spread to nearly all sectors by the end of the month, but the bank expects a speedy recovery in the broader economy during the second half of 2020.

Uysal lauded the government for taking timely, goal-oriented and predictable steps in response to the crisis, adding that Ankara still has “a very wide and flexible set of tools” to address the challenge posed by COVID-19.

Uysal said Turkey will bounce back quickly, despite predictions by many economists that the country will suffer its second recession in two years.