Turkey will be another testing ground for bitcoin as the country’s fiat currency, the lira, falls out of favor with the country’s citizens as inflation rips through every aspect of Turkish life.
Over the last two years, Turkish citizens have witnessed all of the telltale signs of what happens when a currency collapses and how a government and central bank attempt to save it.
Every day Turks face the rising costs of milk, wheat and cooking oil and subsequent shortages. Sunflower oil, for example, is now rationed at two liters for each family per month. Exports of cooking oil have been banned because of these shortages Lines for bread are now common.
The cost of rents are rising by as much as 60%. College students are sleeping in parks.
Inflation Drowning Turks’ Wealth
For the typical Turkish family, their bank savings accounts are disappearing, inflated away. As their money dies, Turks are demonstrating in the streets, demanding higher wages. Some are successful in seeing wages rise, but that increase is quickly swallowed by inflation.
In April, Turkish inflation stood at 61 per cent, a 20 year high. The president blamed the Russian invasion and the covid flu for the surge. Food inflation is at 70 per cent. Energy inflation rose 103 per cent. Transport costs also increased nearly 100 per cent. Meanwhile, the producer price index rose 115%. The lira now owns the title of “worst-performing currency among emerging market currencies.
Turks Search for a Safe Harbor
As a consequence of the inflating lira, Turks look for safe alternatives. Most Turks preferred gold as a safe choice, followed by US dollars and bitcoin. That gold is seen by Turks as a safe haven is not surprising. Turkish people have a tradition of turning to gold during hard times. It’s estimated that Turks have increased their gold holdings by $36 billion the past few years. It’s believed that Turks hold nearly $350 billion in gold.
This flight to a safe harbor is exasperated by the rising costs of imported grain from Russia and Ukraine. As the price of this grain escalates, it will further fuel Turkey’s inflation. The Turkish lira has lost 75% of its value as compared to the US dollar over the past five years.
Turks Raided by Neighbors
Turkey has attempted to stop the inflation by setting price controls. This action has raised red flags as Turkish bakers warned that they are going out of business as they are forced to adhere to regulators threats of fines and imprisonment.
Turkey raised the minimum wage by 50%. This, of course, can contribute to more inflation. Businesses complain that they could face bankruptcy to pay higher wages.
To make matters worse, news outlets are reporting that citizens of countries near Turkey are raiding Turkish grocery stores. These tourist “shoppers” drive into Turkey and use stronger currencies to buy out food and return home. This further exasperates lira inflation. There are even Twitter reports of tourists departing Istanbul airports with loads of toilet paper.
Turkey’s Monetary Policy Puzzles the World
These raids are another economic attack on the typical Turkish family, as their bank savings accounts are disappearing, inflated away. As their money dies, Turks are demonstrating in the streets, demanding higher wages. Some are successful in seeing wages rise, but that increase is quickly swallowed by inflation.
Where does this inflation chaos leave the typical Turk as related to crypto? Not in a good place.
Turkey’s President Recep Tayyip Erdoğan has engaged a monetary policy that has befuddled the world and wrecked the lira.
Turkey refused to raise interest rates to fight inflation. Erdogan fired four central bankers who tried.
Turkey’s President Declares War Against Crypto
Back in April, Turkey’s president banned the use of bitcoin as a means of payment. Erdogan declared that he is at war with cryptocurrencies, claiming that cryptos are used for terrorist funding and money laundering.
The Financial Times reported that Turkey’s central bank was “uncomfortable” with Turkish citizens buying cryptocurrencies. The bank also demanded that lenders stop loaning out lira for cryptocurrency purchases.
Meanwhile, Turkish TV broadcasts display Bitcoin prices in comparison to the dollar, the euro and the lira. Ads for crypto appear on trains and billboards. Bitcoin stalls are popping up in Turkey’s bazaars.
Quite simply, Turkish citizens no longer trust their leaders, as politicians bombard them with fake inflation statistics and bonehead political decisions. In addition, about two-thirds of Turkey’s bank accounts are in foreign currencies, mostly dollars and euros. Turks fear that the government might seize those foreign savings and convert them to lira and its rising inflation.
Can Bitcoin Control the Inflation Dragon
People are also discovering that it’s difficult for government to control bitcoin as a store of wealth. And if people decide to use bitcoins to buy goods and services, it’s nearly impossible for government to stop it. Bitcoin can be held on immutable blockchains and protected by hardware wallets, using a phone or a computer.
Since inflation hit Turkey, internet searches for bitcoin information are rising. People are seeing bitcoin as an alternative to government inflating fiat currencies.
Data shows that Bitcoin and Tether are the two most popular cryptocurrencies in Turkey.
As the year 2021 began, 1.5 million Turks used lira to buy crypto. As the year ended, that number swelled to 5 million. The volume of crypto traded went from $20 million daily to $500 million. It’s estimated that 10 to 14 million Turks hold some form of crypto.
As the battle rages to keep bread, gasoline and other necessary goods on the table for the typical Turkish citizen, bitcoin stands up as an alternative to a bleeding fiat currency. Turkey’s financial sector has pretty much thrown in everything, including the kitchen sink, to combat the inflating lira. Whether bitcoin can rescue some of Turkey’s wealth from the inflation monster is a scenario that the bitcoin world is watching.