Money currency is always a matter of global controversy. The value of the currency will speak in part of the development of the country, how strong the economy would be. However, sometimes the volatility of the market coupled with the effects of the government intervention can cause controversy around that currency. The impact can be positive or negative and can influence the global market in general and the countries related in general. More specifically, is the Turkish Lira currency in danger of becoming Zimbabwe's second currency?
Turkey's triggers for the currency crisis are divided into three groups. The first is the process of withdrawal of investors in emerging markets. Although in Vanguard Research, emerging markets are reported to have remarkably fast and impressive growth and rise to become one of the world's top investment portfolios with significant gains in the market. The stock market has attracted many investors from around the world to pour money into. Emerging markets are developing countries with high growth rates leading to the emergence of economic potential. But with a series of global economic events such as the growth of US dollar interest rates and the volatility of emerging markets, the divestment of investors has accelerated.
The second group is the diplomatic crisis that led to economic wars. The United States has adopted economic warfare by raising taxes on Turkey, which has depreciated the Lira. This is one of the most important factors in the decline of the Turkish Lira. Thirdly, the policy of the Turkish government, or in other words the decision of President Mr. Recep Tayyip Erdoğan in economic management policy and currency. According to President Erdoğan, high-interest rates are "the mother and father of all evil," the president's desire is to lower interest rates lower to lower levels to promote economic growth. All of these factors correlate with each other and have contributed to the Lira value crisis.
The process of accelerating investors withdrawing money from emerging markets. This is due to the fall in the currency value of emerging markets. Once one of the emerging markets falls, other emerging markets will suffer less or less. In fact, this case is not uncommon, in August 2018, Ivana Kottasova pointed out that there were withdrawals from the market due to the impact of not buying many commodities from China, and thus The world is full of oil exporters. In addition, the Fed has indicated the opportunity to raise interest rates of the US dollar has increased the percentage of withdrawal of investors. About $ 52 billion was withdrawn from Russia over $50 billion last year; $ 48 billion was flowing out of Brazil.
The growth of the US dollar has pushed emerging markets down due to the US dollar acquisition from emerging market funds. The Fed's rise in interest rates has made it harder for emerging-market businesses that have loans in US dollars and also make these countries meet difficult to pays the loans. According to Ishika Mookerjee, the Institute of International Finance (IIF) has stated that investors have seen the trend of negativity and stopped investing in EMs (Emerging Markets) in May 2018.
Non-resident portfolio outflows totaled $12.3 billion in May, with an even division between the bond and equity markets. In that, Asia is the largest loser with a figure of $8 billion.
Turkey is no exception in the case of currency devaluations, and the impact is more extreme than other emerging markets. The essence of Turkey's economy is its dependence on foreign capital. The fall of the Lira and Turkey's economic woes have been causing confusion for other emerging markets and hurt some European banks - which have assets in Turkey.
Georgina Laud states that Lira fell 35% of its value this year with traded at 6.801 against the US dollar.
Movements from political tensions may cause a decline in the economic market due to the impact of the two sides. Diplomatic relations between US and Turkish allies are straining after a series of controversy over Ankara's arrest of a US clergyman accused of failing to cast a coup in Turkey in 2018 to military operations in Syria. The US has imposed tariff sanctions on imported aluminum and steel products from Turkey. According to AFP, US moves have had a strong impact on the Lira, more specifically the 5:1 ratio of the Lira against the US dollar, the lowest in the Turkish economic history. In detail, Richard Partington points out that the fall of the Lira had occurred before the United States imposed import tariffs, with 14% declining as investors pulled out. After US import tariffs, the Turkish Lira continued to fall by nearly 50% against the U.S dollar.
Political risks can cause imbalances in the investments and cause the currency of the country to have fluctuated. Furthermore, with the test by applying a Fed tapering event on asset prices in 21 emerging markets (EMs) and compiled a 17-day summary of the session. Throughout the study, Mishra, Moriyama, and Nijiaye conclude that some political events will directly affect the exchange rate of the market, thereby affecting the value of the currency. There have been many conflicts in the past that caused instability in the price of money of the parties. In the past, the United States has been detrimental to China by raising tariffs on Chinese imports. These trade tensions have affected stocks and currencies in the world market. According to CNN's Daniel Shane, escalating trade tensions have forced the Chinese Yuan to depreciate in response to President Trump's punitive actions, at the point of time, the value of one US dollar equal to about more than 6.6 Chinese yuan.
President Erdogan's policies are making the Turkish Lira fall. After the low-interest rate policy applied to the central bank, Lira has no sign of going up as the Turkish president intends. Due to the political instability of US and Russian military actions in neighboring Syria, the value of the Lira collapses more rapidly. Moreover, the inflation rate in Turkey is considered too high, reaching 15%.
Based on the theory of developing inflation expectations applied in the case of Turkey's economy, experts say, and the market's turnaround, Turkey's annual inflation seems unlikely. The signal goes down. If the central bank does not raise interest rates in line with inflation growth at the moment, the Lira will continue to depreciate. Still, President Erdogan insists to remain unchanged for his high-interest rates, ahead of alarming statistical numbers. In previous times, according to Forbes, Steve Hanke's inflation rate was measured through purchasing power parity (PPP), which was 39.2%, 3.6 times the real 10.85%.
The International Monetary Fund (IMF) may now be one of the best ways for the Turkish currency market to go through this dangerous phase. The IMF is an international body that monitors the global financial system by monitoring the exchange rate and balance of payments, as well as technical assistance and financial assistance when required. Finance Minister Berat Albayrak, son-in-law of President Recep Tayyip Erdogan, states the government's comments on the IMF, bailouts from the IMF would not need to be sent to Turkey, according to a statement by France24, Berat Albayrak, Lira will return stronger than ever after experiencing currency fluctuations. Moreover, according to the theory of supply and demand in the foreign exchange market, the supply of Turkish Lira will be pushed higher on the back of the value of the US dollar. Central banks will have to compensate for the loss of the Lira by expanding the currency. It is this factor that triggers Turkey to turn into exactly like Zimbabwe in history with hyperinflation.
Although the indices of the Turkish lira are alarming, it is impossible to end up like the Zimbabwean dollar. We will look at this in two aspects. First is the historical aspect and international funds, the world has experienced a costly lesson from the strange currency crisis in Zimbabwe and the result affected was not easy to deal with, international funds and money sources around the world will have to interfere not because of all benefits but because of the own profits. The second reason is government intervention. Although, Turkey has some aggressive actions about interest rates and political tensions Turkey will have to consider theses and brings out the best solution for the Turkish Lira.
Zimbabwe began to experience hyperinflation after having gone wrong in its agricultural policy. According to a report by the Federal Reserve Bank of Dallas, the average annual inflation impact plus the per capita unemployment index has pushed the value of the Zimbabwean dollar to the bottom. The IMF indicated on December 31st, 2018, 1 US dollar equals to 4 million Zimbabwean dollars. To reach a peak of inflation around 500% as Zimbabwe needs a long period of time. In the case of Turkey, although the inflation rate remains high at double digits, in the context of international market integration, the interventions of neighboring countries is indispensable. Other emerging markets such as Asia and Mexico are somewhat affected by the Turkish currency crisis. High potential, investment funds, and sponsors, as well as IMF funds, will tap into the market through other related emerging markets. The indirect leverage will balance the inflation of the Turkish Lira in time.
The Turkish president has spoken out loud about the high-interest rates but with the escalating tension of currency indices. The latest news on Turkey's central bank raised interest rates. Raising interest rates for Turkey is no longer a problem, but a necessity. Raising interest rates to help the Lira get noticed, coupled with an increase in the supply of the currency, will make the Lira more attractive to investors. The Turkish president has spoken out loud about the high-interest rates but with the escalating tension of currency indices. The latest news on Turkey's central bank raised interest rates. Raising interest rates for Turkey is no longer a problem, but a necessity. Raising interest rates to help the Lira get noticed, coupled with an increase in the supply of the currency, will make the Lira more attractive to investors. The BBC posted the latest figures on the thirteenth of September 2018; the interest rate has been increased by 15%, a remarkable and positive move in President Erdogan's 15-year rule.
Overall, the plight of the Lira could completely become the second Zimbabwean dollar with such factors as the process of withdrawing money from investors in emerging markets, the diplomatic crisis leading to the economic war, the policy of the Turkish government. In the process of divestment of investors in the Turkish market, the article pointed out the degradation of emerging markets and the reason Turkish was also affected. Secondly, political tensions are listed and analysis influences the Lira and similar cases in the past of the international economic market. Finally, the false policies of the Turkish government have pushed Lira continually setting new bottoms in emerging markets.
Complied by Vietnam Credit