Turkey’s currency plunges after the head of the country’s central bank is fired | Hacker News Reader

Turkey’s currency plunges after the head of the country’s central bank is fired

nytimes.com

57 pointsjbegley60 comments

FTFY: Fired Central Bank Chief for the 3rd time in 20 months. [0]

Turkey had 4 different Central Bank Chiefs in the last 20 months, all fired by Erdogan. This one only lasted ~130 days.

[0] - https://en.wikipedia.org/wiki/List_of_Governors_of_the_Centr...

At this point, if offered the job, why would anyone take it?

It seems to me like a bumper job. You get the signing bonus, take the blame and probably also get a less visible cushy job afterwards.

You wouldn't want to turn down such an order, er generous offer from Erdogan, would you?

Yeah, it's not like you have any choice when such an offer comes from the divine being Erdogan. He has absolute power on anything and everything, like deciding who's gonna be the next rector of a top university or assigning his son in law as the minister of economy etc.

Source: I used to live in Turkey until I decided I can't take this shit anymore and immigrated to Western Europe.

For the money

Erdogan and his political party have been draining all the money reserve of Turkey since 17 years.

Yeah, FT has been harping on this for a while now. If you have reserves you can prop up your currency, but the clown world can only last so long until you run out of money.

It's currently 12.7c

Back in November it was 11.7c

The bigger story is that back in 2011 it was 65 cents.

That's ~10%. The drop from 65 cents was ~80%, but this one is still noteworthy.

It's increased from 11.7 to 14.3 then dropped to 12.6 over the last 6 months, the bigger story is the long term devaluing over the last decade compared with the dollar

Alternative: https://archive.is/r6mTZ

The funny thing is former president offers his gratitude towards Erdoğan for dismissing him...

This perfectly explains one of the many bull cases for cryptocurrencies. 15% annual inflation robs the working class of wealth but they previously had no alternative. At least now they can store some of their assets in cryptocurrencies while the government continues to debase the purchasing power.

Because cryptocurrencies are famously stable?

From a supply perspective, yes.

The supply of Tether, on the other hand, makes a nonsense of the BTC/USD/USDT exchange rate.

Nobody[1] gives a rip about the stability of the supply. They care about the stability of the value.

-----

[1] OK, almost nobody. For crypto to be widely used, it needs a much more stable value.

Many people, my self included, care indirectly about the supply being limited, because they perceive that this will bode well for its value denominated in currencies which have supplies which aren't being tightly managed.

I agree that in a vacuum nobody cares about the supply.

I'm regards to the stability thing, bitcoin volatility has been steadily decreasing over time. It's still very young and has a lot of price discovery left to go. I personally believe its volatility profile will align with the normal range for commodities and currencies over the next let's say 20 years.

Many people, my self I clouded, care indirectly about the supply being limited, because they perceive that this will bode well for its value denominated in currencies which are being devalued.

I agree that in a vacuum nobody cares about the supply.

A global currency on the blockchain (democratically elected governments who implemented/join the union), where shenanigans can't be done or hidden from others - like printing of money - I agree with, in essence getting everyone on the same or at least a more even playing field, and with population oversight possible into spending of their own government.

> 15% annual inflation robs the working class of wealth

Not, it robs those in the investor class that choose local currency as n investment vehicle for wealth. One is working class exactly to the extent one is dependent on current labor income. It's true that given fixed nominal wages, inflation implies a cut to wages, but Bitcoin doesn't provide an “alternative” that does anything for the working class against that unless it comes with the ability to compel employers to contract for wages that are nondecreasing when denominated in wages without employers reducing the starting level to compensate for the expected volatility and appreciation of BTC over the life of contract.

>Not, it robs those in the investor class that choose local currency as n investment vehicle for wealth. One is working class exactly to the extent one is dependent on current labor income.

Not really. The working poor are the exactly the kind of people who will put their savings in a savings account rather than a s&p500 index fund.

Ahah.

No, the working poor are the kind of people that scrap everything, fidelity cards and discount coupons and sign in a new bank for that 100€ offer.

My high score at my GED (equivalent) granted me 200€, that i immediately used. Yes, most of my middle-class friend kept that in their account, but 5 year later i was earning 50k/yr so i guess my investment in a refurbished computer was a good one.

5 to 10% inflation seems a good target tbh.

It robs the working class of wealth because of timing. The prices rise, then, later, the working class gets cost-of-living increases. That's anywhere from painful to devastating, depending on how low you are in the working class.

A deflationary currency like bitcoin would be awful, like all deflation.

I have never understood why deflation is bad. The money I earn becomes worth more over time? GREAT! I would settle for money that just keeps its value over time. The only side deflation is bad for is the government that uses inflation as a tax.

Because unless your investment expectation in greater than the deflation value, you won't invest. Loans become too expensive and the default rate will be higher since there is less investment. And no more thing such as buying on credit. And if banks don't loan money and credit become a thing of the past, the money supply disappear.

Also, unless deflationary money is decoupled from production , production will crumble and you will enter hyperinflation quickly.

Those all would be temporary effects as everybody adjusts. People still need to have a place to live, food to eat, cloths to wear, and ways to be entertained. Its not like everybody just stops spending money. They just get rewarded for whatever they have in savings. With savings people have more ability to take risks on investments.

Deflation builds value in an economy.

If the value of your currency kept going up people would be incentivized to keep it in their bank accounts rather than spend it and invest in their economy.

Of course this is certainly less of an issue than hyperinflation, but neither is great.

That argument always seemed weak to me. Keeping money out of the economy is a temporary effect as prices adjust. Once people have savings they would start looking for ways to employ that money. People are always going to do what will benefit them most. When people have savings they have more ability to risk loss by starting a business or investing. Having more people with the ability to risk loss is a very good thing for real growth.

Now if deflation is higher than any possible investment return, then people will only horde money. The goal of most people is to accumulate value, not a specific currency. Inflation destroys value, deflation creates value.

It's bad if you owe money. And many people do. They don't want to owe more value because the currency becomes more valuable. (They would owe the same number of dollars or bitcoin or whatever, but they'd owe more value, because each dollar or bitcoin would be more valuable.)

And then comes the second-order effects. Each debtor owing more value means more of them can't pay, so more default. This leads to things like houses reverting to the lenders, who then sell them for what they can get. This reduces the price of those assets, which causes additional deflation.

When this cycle really gets going, it crushes lots of people - even responsible people, whose only mistake was getting a mortgage when times were good, and maybe a car loan and a bit on their credit cards.

Deflation is bad for debtors only if nominal interest rates don't drop to compensate for the increased value of the currency. But given that any instability of the value of a currency is bad, inflation has historically done much more damage than deflation.

Turkey is huge on physical gold as well. People basically spend their money on gold immediately to avoid the inflation (from what I saw in some videos). The Grand Bazaar has dozens of gold shops.

Most Turks just keep their money in a foreign currency, or gold. If I am not mistaken, about 65% of the deposits in Turkey are denominated in a foreign currency (mostly USD)

You will know Tayipp has given up when he appoints Bilal to this position.

A funny pattern: quite often, "capitalists" welcome authoritarian rulers, expecting them to be "good for business", because they "make the trains run on time" and keep unions and environmentalists in check.

However, in the long run, these rulers end up having their own agenda that turns out to be bad to businesses.

Examples?

* Brazil's Bolsonaro crashing the country's confidence and branding by shunning trade deals with EU, being hostile to trade partners (China, Arab countries) or interfering (Hugo Chavez-like) with the state oil company.

* Trump and his disastrous handling of the pandemic.

* Xi-Jiping and the CCP interference in AliPay and other conglomerates.

* Erdogan's disastrous handling of Turkey's currency.

Moral of the story: everyone loves their dictator until the moment the dictator is no longer "their". Frankenstein's monsters have this unpleasant side effect of turning against their creators.

I agree with what you're saying, but Erdogan has been prime minister for almost 20 years, and that can be properly considered "the long run".

I don't think the same applies to Bolsonaro and Trump, who've only had one term, and while horrible leaders, have not (yet) managed to change the institutions which elected them (Erdogan headed 3 constitutional changes).

Lower interest rates in the US to spur growth: Smart!

Lower interest rates in Turkey to spur growth: Stupid!

People want US dollars a lot more than they want Turkish Lira. I don't agree with US monetary policy but to imply they're the same situation is dumb.

> When disagreeing, please reply to the argument instead of calling names. "That is idiotic; 1 + 1 is 2, not 3" can be shortened to "1 + 1 is 2, not 3."

I think we're all adult enough to tolerate my level of defamation. The example of 1+1=3 implies an honest mistake. If someone is asserting that 1+1=3, calling it a dumb argument is accurate and appropriate. "Inappropriate" would convey that the comment about monetary policy was not good. "Dumb" conveys that it is both inappropriate and belligerent.

Whether "we're all adult enough" isn't the point. The point is that defamation (even your level of defamation) is against the site guidelines.

And I think the point is obtuse and pedantic beyond the intended scope of the guidelines, so I don't care. No name calling doesn't mean you can't assert low intellectual merit of arguments.

maybe it's one of the perks of controlling the world's reserve currency?

This. Only developing countries know what a privilege it is to be the reserve currency.

The difference between the two being inflation. The inflation rate in Turkey is 14%.

Are people downvoting you because you made an obviously true statement or because they don't understand how inflation targeting works?

Folks, if it's the latter, I recommend you read a primer on inflation targeting here https://en.wikipedia.org/wiki/Inflation_targeting to learn how central banks do their magic.

It's almost like there is more than one variable at play.

I feel like this was written to point out the absurdity but there is no joke here. This is true. This was a very bad move for Turkey.

So far it has worked out pretty well for the US.

Aspirin is good!

Aspirin is bad!

Well.. it depends. What do you suffer from?

Turkey suffers from an undemocratic government, in a country where corruption (at ALL levels of government and ALL aspects of life) is the status quo. It looks that Erdogan prefers to have a half-dead country that needs him, than a thriving country without him (yes he is a dictator).

A fiat currency's value mostly stems from the perception of if the country has the military/political might to enforce it's contracts. Given that Turkey's military is a significant force I doubt their currency will dip so low as to not be useful.

That said, volitility for fiat currencies can get pretty high in these kind of situations. But even though the value is going down Turkey is still spending massive amounts of energy maintaining it's army to support the currency. That's the real signal to pay attention to. Individual economic policy administrators don't really matter since economic policy is mostly made up and irrelevant.

> fiat currency's value mostly stems from the perception of if the country has the military/political might to enforce it's contracts

This is an unconventional theory. It does not have a good track record.

Yes, having a monopoly on violence is a basic requirement for a functioning government. Its absence implies a failed state. Failed states aren't known for having useful currencies. But functioning states regularly trash their currencies.

> A fiat currency's value mostly stems from the perception of if the country has the military/political might to enforce it's contracts.

Bitcoin's energy consumption for its value now seems quite modest.

Huh? A fiat currency's value stems from a government's ability to repay sovereign debt and be responsible with the money supply. That's exactly why modern economies separate the treasury and the central bank - that system, however flawed, is the reason why investors are confident letting sovereigns borrow their money.

The army is kind of irrelevant here, because the Turkish government has a lamentable track record of printing money to pay the bills. The previous lira reached 1.3 million to the USD before they chopped off 6 zeroes (I once paid 6,500,000 lira for a kebab & a Coke at the airport), and the new one is rapidly heading the same way:

https://en.wikipedia.org/wiki/Turkish_lira#/media/File:Euro_...

Currencies aren't "supported" by armies. They're supported by either exports of real value or the ability to peg the currency to a "harder" currency by open market operations, which implies reserves of hard currency and/or gold. See the UK falling out of the Exchange Rate Mechanism in the 90s, for example.

Argentina had plenty of military throughout its various currency and debt crises.

The Turkish lira is a new currency - only in existence since 2005.

Turkey had a pretty strong military in the 80s and 90s, enough to crush the Kurds, keep Greece at bay, and prevent Cyprus reunion.

Its currency devalued 35% per year from 1985 to 1990, 70% per year from 1990-1995, 170% a year from 1995-2000, and 20% a year from 2000-2005

The same thing is happening again.

The new Turkish lira was simply a redenomination that got rid of six zeros compared to the old Turkish lira that goes back to 1923. It's not really a new currency.

Following your logic, Argentina should be a much wealthier country...

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