After the Turkish President Erdogan dismissed the country’s central bank chief, he called on the population to bring foreign currency and gold stocks back into the domestic economic system. This caused a real Bitcoin boom in Turkey.
It was a bang that only reverberated briefly after the withdrawal from the Istanbul Convention, which sparked protests around the world. And yet: when Turkish President Recep Tayyip Erdogan dismissed the Federal Reserve Chairman Naci Agbal last weekend, that set Turkey and it's economy in turmoil. It was the post's third dismissal in two years. The reason for this time: the bank's interest rate policy. Agbal had raised the key interest rate from 17 to 19 percent to keep up with the high inflation rate of the country. However, this did not correspond to the ideas of Erdogan, who insisted on low interest rates despite rising consumer prices. The consequence: Agbal's dismissal after only five months in office. Sahap Kavcioglu, a former member of the ruling AKP party and a declared opponent of the high-interest rate policy, took over for him.
In response to the change in leadership, the rate of the Turkish lira almost plummeted. At times, the currency lost a full 15 percent and the domestic ISE 100 exchange rushed south with a 10 percent minus. Experts suspected that one of the main reasons for this was the lack of independence of the central bank. This would weaken the actors' confidence in the financial market and inevitably lead to even higher inflationary pressure.
Turkish citizens no longer seemed to really trust the lira and were looking for alternatives. One could also observe an increased interest in the crypto space. According to GoogleTrends , searches for Bitcoin quadrupled. In doing so, the cryptocurrency even outperformed its physical competitor gold.
Another reason for this development is likely to lie in the Turkish economy itself. This could also grow in corona times. However, your foundation seems more than shaky. Especially when you consider that what Erdogan calls the “Turkish economic miracle” is a result of the national credit boom. In the meantime, the state banks even reported a doubling of loans in the second half of 2020.
Erdogan: "Citizens should invest"
After some citizens wanted to hedge against rising national inflation through alternative investments, Erdogan appealed to the population “to keep foreign currency and gold at home just to feel safe”. Thereupon he called on the citizens on March 24th to return the foreign currency and gold they had acquired to the Turkish economic cycle.
As the above graphic illustrates, you can see that Google search activity for Bitcoin has increased again since Erdogan's request. So it seems that there is a turnaround in the investment behavior of some Turkish citizens. In response, the exchange rate exploded on Turkish offline exchanges. Citizens there had to raise up to $ 100,000 in the lira to purchase a bitcoin, almost double the global market price.
However, the trend should not only come from the private sector. Because the Turkish government is also increasingly interested in this market. In early March, the Turkish Ministry of Finance announced that it would work with the central bank and regulators to set clear guidelines for the use of cryptocurrencies.
It is still unclear which guidelines this will be exactly. A big thorn in Erdogan's side is likely to be the characteristic anonymity of many cryptocurrencies. For example, last year the Turkish statesman blocked Twitter after insulting his daughter on social media. However, critics see this as a pretext to take more targeted action against opposition members who use the platform as a mouthpiece.
Just like Twitter, Bitcoin is also an important, oppositional instrument - especially in authoritarian-led countries. For example, donations can be sent anonymously to government critics without fear of any consequences from the state. This is what happened in the Navalny case. Erdogan and his government could try to shut down these sources of income under the pretext of preventing terrorist financing.
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