A bitcoin premium of $500 in Turkey has given way to a bitcoin discount of $300 as Turkish Lira (TRY) becomes more volatile than even cryptocurrencies.
On August 10th, most local exchanges had bitcoin’s price at a significantly higher level than global exchanges. Today, however, nearly all of them are reporting a lower local bitcoin price.
As can be seen, bitcoin’s current price against the dollar is at $6,500, but against Turkish Lira it stands at $6,200.
The reason is unclear, but it might be due to considerable volatility in Turkish money, which is down some 30% in the past few days and fell 10% just today before slightly recovering.
Turkey’s Isbank chief executive, Adnan Bali, said on Monday that Turkey is under a speculative attack, according to Reuters.
The crisis, however, begun when Recep Erdogan, among many constitutional changes, replaced the Turkish Finance Minister, who had the confidence of markets, with his son in law, raising concerns that monetary policy is to be politicized.
“Interest rates should be kept to a minimum because they are a tool of exploitation that makes the poor poorer and the rich richer,” Erdogan said on Saturday.
Inflation currently stands at 15% in Turkey, but no raise in interest rates is expected, suggesting money supply, and thus inflation, might continue to increase.
In further measures by the Turkish Central Bank, they have cut lira and foreign currency reserve requirements, something which too might mean more money is printed out.
Markets, therefore, are now valuing the lira less than they would have done, with Erdogan and the global financial system so going head to head.
Tensions are in addition increasing between America and Turkey, ostensibly over an imprisoned American pastor, Andrew Brunson, but more realistically probably over geopolitics.
That being Turkey’s recent rise. Its flexing of some muscles in the region, such as the building of a Syrian army which might be aimed against US supported Kurds. As well as the question of who Turkey will befriend and who not as it bids to become a regional power.
Trump, thus, took the opportunity to double tariffs on steel due to the fall of Turkish Lira, but the real battleground here appears to be over the question of interest rates.
If Turkey does not increase them, it remains to be seen whether inflation does rise. That’s what markets are betting, but markets can be wrong.
If they turn out to be right, the situation might get worse, with fears rising over contagion in some European banks, including Spain’s BBVA, Italy’s UniCredit and France’s BNP Paribas, all of which have significant operations in Turkey.
Finally, there are some risks for the dollar too. Turkey might move away from it, with Erdogan stating they are prepared to trade in local currencies with China, Russia, Iran and Ukraine, as well as Europe if they are willing.
Whether that would be a temporary measure remains to be seen, but the geopolitical landscape might be shifting to a multipolar world with its intricate dance of alliances.