As its leadership experiments with an unusual monetary policy, Turkey is in the midst of a severe currency crisis with no sign of abatement.
Since this time last year, the Turkish lira has lost 50% of its value against the dollar — meaning that citizens are faced with diminishing purchasing power and continuous price uncertainty.
Inflation in the country of 84 million is now at more than 21% and has climbed steadily as President Recep Tayyip Erdogan has refused to raise rates, meaning purchasing power for Turks earning local salaries has plunged… Analysts are calling the current lira rout the second currency crisis for Turkey in three years. In the first half of 2018, investors were already sounding the alarm at the central bank’s lack of independence from Erdogan as the lira breached what was, at the time, a record low of 4 and then 5 lira to the dollar. To imagine the currency falling through 15 to the dollar was at the time unfathomable.
Indeed, Turkey’s central bank announced last week that it would further slash interest rates from 15% to 14%. “The decision follows a long series of rate cuts from the central bank, which is seen by markets as not independent from Erdogan, who has called interest rates ‘the mother of all evil,'” reports CNBC, noting that Erdogan has fired several central bank officials over the last two years.
The crisis in Turkey mirrors recent economic calamities in nearby Lebanon, which is experiencing hyperinflation and inconsistent power supplies worsened by a massive explosion in Beirut last year. According to the World Bank, Lebanon may be seeing one of the worst economic depressions since the nineteenth century.
A recent report from the International Monetary Fund revealed that the United States and Iceland are tied for the highest inflation rates among the world’s advanced economies. Meanwhile, Venezuela — with 2,700% inflation — is home to the planet’s fastest-growing price levels.
Rising inflation in the United States is prompting action from the Federal Reserve. According to the Bureau of Economic Analysis, the Personal Consumption Expenditures Price Index — which the central bank uses to inform monetary policy decisions — hit a year-over-year rate of 4.1% in October. More recently, the Bureau of Labor Statistics revealed that the Consumer Price Index is rising at a 6.8% clip — the largest year-over-year increase since June 1982.
High inflation is a bad omen for President Biden. In a recent Fox Business survey, 47% of Americans believe that Biden’s actions are “hurting” the economy, while only 22% believe they are “helping.” Likewise, 46% believe that Biden’s social spending plan would “push inflation higher,” while 21% believe it would “help lower inflation.”