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Timeline- Turkey caught in a spiral of lira crises -Breaking


© Reuters. FILEPHOTO: An Ankara money changer holds Turkish Lira Banknotes, October 12, 2021 at the currency exchange office. REUTERS/Cagla Gurdogan


By Karin Strohecker

(Reuters) – The currency has seen a nearly 25% drop in value due to rising inflation and the refusal of central banks to increase interest rates. This is fueling fears about another currency crisis.

Turkey is no stranger to booms, busts, and sharp currency swings, and has been long considered one of the most risky emerging markets. It runs large current-account surpluses and relies on foreign financing to fund unorthodox progrowth policies.

(Graphic: Turkish lira timeline-

These are some of the most recent lira flashpoints.


Late 2000 saw concerns about the financial health of the banking system grow, leading banks to shut down interbank lines for vulnerable investors and lenders.

Capital flight accelerates after the collapse of Demir Bank. The central bank stops emergency credit lines to lenders in order to protect its domestic assets.

Turkey is granted $10.5 billion by the International Monetary Fund. It allows the central banking to preserve the dollar peg of the lira. However, it cannot do so before the currency plunges 25% less than 3 weeks.

An attack on the lire is triggered by a political crisis that further weakens the confidence in the system. After allowing the lira floating on February 22nd, the government makes it sink by approximately one-third to the dollar.


Turkey was among those emerging markets that were hit by the announcement made in May 2013 by Ben Bernanke, Federal Reserve Chair and U.S. central banking regulator, that it would reduce asset purchases.

Domestic problems add pressure. A corruption scandal forced the resignations of important ministers, and the cabinet was reshuffled.

As President Tayyip Erdogan calls for low interest rates, policymakers hesitate to take action to stop the falling lira. In January 2014, the central bank raises interest rates from 7.75% to 12% due to currency slide. This is at an urgent overnight meeting.


Turkey undergoes seismic political shifts after the July 2016 coup attempt, and in 2017, a constitutional referendum which prompts a transition from a parliamentary-to-a presidential system.

Erdogan promises tighter control over monetary policy in May 2018 and lower interest rates. This raises concerns about economic fragility.

Washington issues economic sanctions following the arrest of Andrew Brunson by Turkey on terroristic charges. The move roiled currency and saw the lira drop 25% alone in August.

A meltdown triggers an economic crisis. This causes sovereign ratings to be downgraded and sends ripples through emerging markets.


Inflation rises to 36% between December 2021 and September 2021 due to rising demand and supply chain snags. The central bank cuts interest rates 500 basis points by the end of 2020, even though it has slashed them by 500 basis point.

November saw a drop in the lira of nearly 30%. Policymakers took steps to encourage savers and other financial institutions to retain lira instead of foreign currency, as the central bank attempts to stabilise the lira.

After several weeks of relative calm, in early 2022 the lira crises returns. The invasion by Russia of Ukraine on February 24, 2018, has triggered a global rise in prices. Turkey is experiencing an inflation rate of 70%. This trend is set to continue. Geopolitics is adding pressure, as Ankara opposed NATO membership for Sweden/Finland and a front offensive in Syria.

With negative net foreign currency reserves, high interest rates and Erdogan’s pledge to maintain low rates, analysts worry that the country could be in another currency crisis.