The Turkish Lira’s Freefall And The Bitcoin Parachute

As the national currency of Turkey continues to plummet, Bitcoin represents an escape hatch for citizens looking to preserve wealth.

As the national currency of Turkey continues to plummet, Bitcoin represents an escape hatch for citizens looking to preserve wealth.

2021 was a rough year for the people of Turkey, as the country experienced rapid devaluation of its currency, the lira. Things haven’t improved in 2022 as the lira has suffered since Russia invaded Ukraine as sanctions and export bans have resulted in soaring commodity prices. According to official government reports, Turks are now suffering from 54.4% year-over-year (YoY) inflation, the highest in 20 years.

Annual Turkey Inflation Rate

The central bank estimates that inflation will only be 23.2% YoY by year-end, but that estimation was made assuming the price of crude oil would be around $80 per barrel. The outbreak of war has caused the price of oil to spike well above $100 at the time of writing. Soaring commodity prices from the war likely mean the central bank is underestimating year-end inflation. To put things into perspective, Russia and Ukraine supplied 80% of Turkey’s $4 billion grain imports last year. If the price of that one single commodity increases drastically, that alone could cause Turkey’s inflation rate to rise.

The purchasing power of the lira is tragically vanishing right before Turkish citizens’ eyes. But the truth is, this currency crisis has been developing for a long time now.

Over the last five years, the lira has lost 75.57% of its value against the U.S. dollar.

Source: Tradingview

How Did Turkey Get Here?

To put it simply, since 2012, Turkey has suffered from taking on a large debt burden coming out of the Great Recession, political instability that led to a failed coup d’état in 2016 and U.S. sanctions and tariffs on its steel and aluminum industries further damaged its economy.

Here’s a helpful timeline of events to get a sense of what Turkey’s last decade has been like:

All of these events have culminated in what is unfolding today with the collapsing lira. Over the last two years, we’ve witnessed all of the telltale signs of what happens when a currency collapses and how a government and central bank attempt to save it.

The Central Bank of the Republic of Turkey (CBRT) and President Tayyip Erdoğan appear desperate in their efforts to try to combat soaring inflation and stabilize the lira. In the past year, we saw them attempt every tactic in the government playbook to fight inflation.

Here are eight ways that Turkish authorities have tried to combat inflation so far:

1. Implementing Price Controls

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