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bne IntelliNews – ISTANBUL BLOG: Reading through the looking glass

The true believers of President Recep Tayyip Erdogan “New economic model” might want to wonder why, since December 20, Turkey has been savagely burning its foreign exchange reserves again and why, despite the announcement Erdoganomic State Regime to pay off depreciation losses on lira deposits, there was no rush to reverse dollarization.

Erdogan’s son-in-law Berat Albayrak is the patent holder of the idea of ​​using currency intervention to pressure the USD / TRY rate in an attempt to induce currency holders into panic selling. When Albayrak became Minister of Finance on July 10, 2018, the USD /TO TRY the rate was 4.71. Its last all-time low was on December 20, 2021 at 6:37 p.m.

It was on the evening of December 20 that the Erdogan regime staged a new “hit movie”. Following a meeting of the “cabinet” (the so-called “cabinet” is not actually a cabinet), Erdogan announced the new instrument which guarantees lira deposits against depreciation of the currency against hard currencies. .

Simultaneously, invisible fists attempted to knock down a few chunks of the USD / TRY rate. The pair closed the day at 13.51, after falling 26% within hours, and fell to 10.16 on December 23, a rate that translated into a 45% strengthening in three days. At the end of 2021, the rate stood at 13.30, up 31% p / p.

After the instrument was announced, a media campaign was launched to portray Erdogan as killing the US dollar and citizens as rushing to sell their dollars.

New measures

The Treasury said it to supply a guarantee against lira depreciation to lira deposit holders. At the end of the term, if the USD / TRY yield is higher, the Treasury will pay the difference.

Banks are able to offer an interest rate between the key rate of 14% and over 3pp (17%) for terms of three, six, nine and 12 months.

Take the example of a 3-month maturity scenario: on December 29, a lira deposit holder transformed his deposit equivalent to TRY 100 into a lira deposit guaranteed by the exchange rate at a rate of 17%. The central bank’s USD / TRY rate was 12 and their money is worth around $ 8.

As of March 29, she had earned 17% interest for three months, which means her deposit now stands at around TRY104. If the central bank’s rate is below 13, that is its money, as TRY104 would earn more than $ 8. If the central bank rate is above 13, the Treasury will make up the difference to bring the amount to $ 8. Let’s say the rate is $ 14. $ 8 is TRY 112. The Treasury must pay TRY8.

This is called a naked call option. The Treasury sells it at zero premium. The risk is unlimited because the exchange rate can theoretically soar indefinitely.

However, it is not known whether a significant number of deposit holders will use this instrument. First of all, no one in their right mind trusts Erdogan’s regime. The instrument could even trigger a bank panic, as the central bank reportedly took steps to lower the yields on currency-linked deposits to negative levels by increasing reserve requirements.

Second, the interest rate is low. At the end of the term, if the government manages to successfully pressure the USD / TRY, the deposit holder will earn 17% interest. Official inflation at the end of 2021 is expected to stand at 30%.

Third, if the deposit holder wishes to get their money back before maturity, the lower of the rates taken between the day the money was deposited and the day the money was withdrawn will be used. So, if we go back to the example above: on January 29, if the central bank’s USD / TRY rate is 13, the custodian will receive their money at the rate of 12.

Meanwhile, the central bank said it to supply a guarantee against the depreciation of the pound to holders of foreign currency deposits if they turn to Turkish lira deposits guaranteed in foreign currency.

He also announced that he to supply a guarantee to gold deposit holders if they switch to local currency deposits.

The chaos surrounding the setting of the rate, which will count towards the lira’s amortization guarantees, continues. On December 31, the central bank noted that he would be Release the base FX and gold rates six times a day.

“All will be well at night” and “The one who think on what the end will bring cannot be a hero ”are the mottos of the Erdogan regime.

It should also be mentioned that the central bank is holding FX futures sale settled by TRY auctions for exporters and importers. Previously, the authority organized such auctions from November 20, 2017 to December 31, 2018.

The first auction of the new mandate was tenuous December 29.

The central bank will also short no more currency contracts settled in lira on the Borsa Istanbul Derivatives Market (VIOP).

All in all, all roads mean printing more and more lire.


The deviation from the key rate (14%) for the 10-year national government obligations at jumped up at an all-time high of 10pp.

Turkish lira lending and deposit rates in banks have also exploded.

Foreign exchange-linked deposits in Turkish banks have expanded record levels.

Net reserves decreases to $ 9 billion, down $ 4 billion w / w, as of Dec. 24 while gross reserves declined to $ 111 billion, down $ 6 billion w / w (chart below by @ atk_1881).

Net reserves, excluding swaps, fell to minus $ 56 billion, down $ 20 billion m / m and $ 9 billion w / w (charts below from BloombergHT and @ atk_1881).

The central bank’s net foreign exchange position declined to minus $ 66 billion (charts below by @ e507 and @ atk_1881).

As of December 24, the holdings of the overall foreigners’ portfolio had fallen to $ 34 billion (chart below by @ atk_1881).

July 2018 – end of 2020 – December 24, 2021. Hisse: Equities, Dibs: National government bonds, TL Mevduat: TRY deposit.