Hey Steemians
A lot has been made of the prices of cryptocurrency these days as the longest bear market run in history continues and I for one am not too bothered. As much as I made money during the bull run, like most crypto enthusiasts I was like I wish I had more crypto. These last few months have been great in terms of racking up large stakes in your favourite crypto and hodling them for the long-term benefits.
The fall of the Lira
While crypto is taking a beating, so too does fiat. We're just used to a gradual decline which we refer to as inflation but in Turkey, the decline is much more servre. In the past 24 hours, the lira has lost around 20% of its value. It had already fallen more than 40% in the past year. That is a massive loss in buying power and I'm sure Turkish residents are feeling the pinch.
To compound this misery President Donald Trump has doubled US tariffs on Turkish steel and aluminium, as the precipitous fall of the Turkish lira accelerates. The reaction from global currency markets to the rift caused the euro to slump to a 13-month low and pushed the dollar to a one-year high. And you thought market manipulation was only in crypto? I think not!
Time for Turkcoin?
Is Turkey heading for an economic crisis?
The short answer would be Yes. Turkey has a deficit in its international trade. It imports more than it exports. Or to put it another way, it spends more than it earns. That deficit has to be financed, either by foreign investment or by borrowing. Turkey's deficit is quite large at 5.5% of national income, or GDP, last year.
3 Reasons why Turkeys debt will increase further
First, it has a high level of debt due for repayment in the near future - loans that have to be repaid and the money borrowed anew. To use the language of the financial markets, the debt has to be refinanced. Credit rating agency Fitch estimates that Turkey's total financing needs this year will be almost $230bn.
Second, many Turkish companies have borrowed in foreign currency. Those loans become more expensive to repay if the value of the national currency declines - which it has.
The currency weakness also aggravates Turkey's persistent inflation problem. The weaker lira makes imports more expensive and so the cycle of debt will continue and the hole will only get bigger with time.
- Thirdly, this sort of instability can wreak havoc on foreign investment. Businesses with an interest in Turkey will not get the returns they used to and may pull out and cut their losses early, it might shy away from possible investment and even a decline in tourism. Which The US rates Turkey at level three, urging people to reconsider travel to the region.
That being said more developing nations might see it as an opporunity to visit the nation, we all love exploitng a countries woes for a cheap holiday am I right? Greece? Thailand? Vietnam? Need I go on?
Photo: Bloomberg
The central bank has an inflation target of 5%. A year ago, inflation was well above that, at about 10%. Since then the situation has deteriorated further with prices now rising at an annual rate of about 15%.
What are Turkey's options?
This is not the first time the Turkish economy has been in free fall but this time there is one important difference compared with the country's crisis at the beginning of the century is that there is now no exchange rate target, unlike in 2001.
Back then, the pressure in the currency markets forced Turkey to abandon the targets. This time there is no currency peg so the lira has simply been allowed to depreciate, which means we could see the national currency hit hyperinflation values and royally screw over its citizens or have them submit to the EU and abandon their currency completely, both in my opinion are pretty shitty options.
What about cryptocurrency?
In some respects, the recent performance of the Turkish economy looks reasonable. It has grown every year this century apart from 2001 (the country's last economic crisis when it received an IMF bailout) and 2009 (in the aftermath of the global financial crisis). In some years growth has been very strong. Unemployment is on the high side - the most recent figure is 9.9% - but it has been relatively stable.
The fact that the rest of the countries markets have to suffer due to the incompetence of a central banking system and government policy is hardly fair on these people. The value they generate from work and value they produce is tethered to this dwindling currency.
I think Turkey is in a prime state to reject the status quo and look at adopting cryptocurrency, it will allow there value generation industries to still trade locally and globally without influence from central banks and allow them to receive fair market value for the products and services they produce.
Crypto starting to replace fiat use
We've seen this in the Marshall Islands, who have rejected the US dollar as their currency due to the strings attached to it by the US. We've seen countries with hyperinflation adopt cryptocurrency like [Zimbabwe](Are South African & Zimbabwean Banks Intimidated By Cryptocurrency) & Venezuela. While some countries like Brazil and Argentina are slowly starting to integrate it more into their daily lives as their national currency continues to lose value at a rapid rate.
If you would like to know more about why I think crypto can replace fiat check out my previous posts:
Have your say
What do you think of national cryptocurrency adoption? Is the fall of fiat in countries an opportunity for crypto to thrive? I'd love to hear your thoughts, especially from Turkish Steeamians!
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