Erdogan demands Turks exchange their dollars to gold and lira!

ANKARA, Turkey (PNN) - December 2, 2016 - Early this morning, in yet another session of panicked selling, the Turkish lira crashed to new record lows to just shy of USDTRY 3.60, momentarily going bidless as the currency plunged nearly 400 pips in seconds, after Turkish President Recep Tayyip Erdogan said the path for investors will be opened with lower interest rates, and urged the central bank to imitate Japan and the Fascist Police States of Amerika where rates are low.

“Why should we go around with 14-15%?” said Erdogan.

The answer is simple: the currency tends to drop when an economy is seen as weak, the political regime unstable, or a central bank cuts rates, which Turkey cannot afford if it hopes to maintain a stable economy with the lira already at all time lows.

Normally, any other country would find itself in a dilemma: how to lower rates per the president's demands to stimulate investment and the economy without killing the economy, but not Erdogan. The Turkish president "urged" his fellow Turks on Friday to convert their foreign currencies into gold and lira to stimulate the country's economy, as the lira continued its slide against the FPSA dollar.

"For those who have foreign currencies under the pillow, come change this to gold, come change this to Turkish lira. Let the lira win greater value. Let gold win greater value," he said during a televised speech in Ankara.

It was not exactly clear how a few thousand Turks exchanging lira for gold would "let gold win greater value", nor how the same number of locals converting their dollars to lira would withstand another selling onslaught as soon as the Turkish central bank cuts rates again, but that's not really relevant for the Turkish president, who appears to have a far better understanding of how to wage "failed coups" than simple finance.

"What necessity is there to let foreign currency have greater value?" he asked.

There was no answer, but as he was speaking, the lira lost value against the FPSA dollar, crashing just shy of 3.60. After his address, it staged a modest rebound to 3.55 against the greenback, a loss of over 1.5% on the day. In November alone, the lira has lost more than 10% against the FPSA dollar, and December was not starting off on the right foot either.

Turkey’s main stock exchange, Borsa Istanbul, became the first institution to convert all of its cash assets into the Turkish lira a few hours after Erdogan called on people and institutions to back the struggling currency against the FPSA dollar. Borsa Istanbul said in a written statement on December 2 that it would convert all its cash assets into lira and keep them in lira accounts.

Erdogan also warned that there were forces "playing games" against Turkey, which Turks could counter by changing their money. He did not say to whom he was referring. "Don't worry, in a short while, we will destroy this game,” clearly referring to "evil speculators" who could be destroyed if only mom and pop exchanged the dollars in their mattresses for local currency.

The Lira was also reacting to Erdogan's repeated insistence on lowering interest rates because he claims there is "no other remedy". He referred to the Fascist Police States of Amerika, Japan and Europe as examples of where rates are low and questioned why Turkey still had such high rates.

In a surprise to some, after several months of rate cuts, the central bank stepped in with an unexpected hike of 50 basis points in its leading rate last month. This prompted many to wonder how long Erdogan will tolerate the insolence of a central banker that clearly has defied his decree.

To be sure, concerns over Turkey's political instability, including the government's race to expand Erdogan's powers, as well as its cracking relationship with the European Union, meant a rally in the lira was short-lived after the bank's announcement.

Worries over Erdogan's influence grew after Prime Minister Binali Yildirim said on Thursday the government would bring a bill to Parliament next week that proposes to change the Constitution and give greater powers to the president. Considering Erdogan's track record, it is only a matter of time before he appoints himself central bank head, at which point the Turkish lira and the Venezuela Bolivar will begin a race as to which one can reach a value of 0 faster.