Turkish lira’s value plummets to its lowest level ever

The price of the Turkish lira plummeted on Thursday to its lowest value against the dollar since it was set in its current form in 2005. Each dollar has been exchanged for 7.25 lira, reinforcing the downward trend that began at the beginning of the year. Each euro has been exchanged for 7.84 lire, almost the historical minimum reached in August 2018.  

The Central Bank of Turkey has spent a large part of its foreign exchange reserves to prop up the lira and prevent a sharp rise in interest rates. The health and economic crisis caused by the COVID-19 is making it increasingly difficult for the central bank to protect the national currency. The government agency Anadolu has explained the collapse of the lira due to the manipulative activity of certain financial institutions based in London, which, according to this agency, would be carrying out massive short sales of the lira to reduce its value.  

Finance Minister Berat Albayrak has told investors that the country still has foreign exchange reserves and has rejected the idea that the authorities will decree a corralito to prevent capital flight. Despite his statements, Turkish regulators have further restricted access to foreign currency on local markets. The central bank's currencies have fallen sharply from 40 billion to 25 billion this year with the aim of strengthening the position of the lira, which has lost 17% of its value by 2020. In addition, the country will have to face the cost of an external debt of 170 billion euros this year. 

To deal with this complicated situation, the Turkish authorities have asked the Federal Reserve and other central banks for a foreign exchange facility, although they have not yet managed to reach an agreement. The exchange lines, in which the Federal Reserve accepts other currencies in exchange for dollars, are intended to support the large foreign dollar markets and not to serve as a credit line.  

Turkey's banking regulation and supervision agency on Thursday issued a ban on unilateral transactions in Turkish lira to three international banks: BNP Paribas, Citibank and Switzerland's UBS, Efe news agency reported. "The three financial institutions have not met their obligations in Turkish lira to Turkish banks on the due dates," a statement published on the website of the country's top banking authority said.

"This failure can affect in a dangerous way the regulated and safe work of the banks and the rights of the owners of savings, and therefore prohibits carrying out one-way transactions in Turkish lira with these three banks," reads the press release. France's BNP Paribas and the U.S.'s Citibank have a strong presence in Turkey. 

The decision was announced hours after the Turkish semi-public agency Anadolu attributed a "manipulative activity" to certain "financial institutions based in London", which would be carrying out short sales of the lira in order to depreciate it. To address the complicated situation of Turkish public accounts, it has limited the amount of lira that can be sold to foreign banks and has broadened the definition of the crime of financial manipulation to include "abnormal or artificial prices".