Could Crypto be the solution to Turkey’s economic turmoil?
Turkey might be well known for its exciting fusion between the Asian and European cultures while also becoming a favoured holiday destination like the Hagia Sophia in Istanbul. Although this all might be good for tourists, the economic situation within the country is not so pleasurable to see with its national currency Lira losing more than 50% of its value in a single year and inflations that are going out of control. Despite the recent ban in the country, millions of Turks still maintain their interest in Crypto as they seek refuge in this decentralized asset. So what is currently going on with Turkey’s economic turmoil? Can Crypto really solve the issue with Turkey’s economy?
What is going on with Turkey’s Economy?
Turkey is always seen as an up and coming country in the European Nations with its economy, over the years, dependent on the Construction and tourism industry. They are also a member of the G20 summit and currently the 20th largest economy by nominal GDP with 17.3% growth YoY. Turkey was also recorded as the second fastest growing economy after Chile amongst OECD members. And all of this sounds good right, so where lies the problem?
The problem lies beneath the surface as when you look closely that the growth was the result of high inflation which reach 20% and a growing external debt which accounted for more than 50% of its GDP. Although Turkey has been quite living on the edge of recession for a few years now but some experts argue that this deteriorating situation with President Erdogan and his controversial government policy “Erdonomics”.
In economics, this demand-pull inflation is basically a situation when there is too much money chasing too few goods and the Turkish money supply has increased 3.5 times ever since President Erdogan is in power. The way to combat this is simple — to raise the interest rates so people are incentivized to save and borrowing becomes more expensive but in Turkey due to the central bank being directly under authority of the President has yielded exactly the opposite result. They have continuously cut the interest rates and this sends its currency to a record low and thus losing 50% of its value.
Although Inflation is not something new as Turkey continuously maintains inflation rates over 10% for the past 4 years and this is partly due to its overdependence on imports especially on the energy sector such as Oil, Gas and Coal which resulted in continuous Trade Deficit. This situation was also made worse with the pandemic as it greatly impacted one of Turkey’s main sources of revenue which is the Tourism Industry.
But just imagine what do you get when Turkey increases its money supply and pairs it up with low interest rates? This situation was made a lot worse, as the reduced rates which were meant to incentivize for business to grow instead encouraged more consumptions as the inflation rates within the country was more than the savings rate offered by the banks. This then sends the Lira into a freefall and while the GDP of the country is growing Year by Year on its figure, but in terms of value that is not the case.
In the end, it is the common people that are affected as most of them are living paycheck to paycheck and soon their income will lose their worth as rising prices destroy its value. Although the President recently announced an increase of minimum wage, this will just result in higher unemployment as companies find it more difficult to hire. This also hasn’t stopped the riots within the country and some Turks leaving the country. Those Turks that have stayed are seeking refuge in dollars and cryptocurrencies to protect their purchasing power but can crypto really help ease this turmoil?
Can Crypto solve this Turmoil?
The Crypto Space in Turkey has always been a mixed relationship with the government hating it and the people needing it. This was proven true as despite the recent Crypto Ban and the President’s intentions to banish it from the country, the space managed to grow by 1000% in Crypto Usage Year on Year. The main driver of this is obviously inflation, and cryptocurrency with its limited supply presents itself as an efficient hedge in times where purchasing power is being diminished.
Now how does cryptocurrency help in solving the issue? The first point is as mentioned before protection of the purchasing power not only for consumers but also for institutions. As you are much better off hedging your wealth with a currency that is limited supply with a continuous global demand and this is why Crypto Assets such as Bitcoin despite its volatility has been an efficient hedge for over a decade.
The second point is not only are you able to protect your purchasing power but also grow your wealth exponentially. With an inflation rate on its peak reaching 20%, your wealth might not be worth anything if this rate continues for the next 5 years while Bitcoin on the other hand has managed to double over the course of the year.
Of course there are risks associated with Cryptocurrency like the recent case with Thodex where $2 Billion of investor funds goes missing but it is because the market is not regulated. It is true that Cryptocurrency cannot overturn the problem with the low interest rates within the country but it can protect the purchasing power of the people so the economy can stay functional. Cryptocurrency also continues to provide returns to long term holders which will encourage Turks to save their money instead of spending it. These two combined should reduce the pressure on prices therefore easing the inflation so the economy could recover in time.
We in Nagaya Technologies Pte. Ltd surely believe that Cryptocurrency has both the capabilities of being an efficient hedge and reliable payment method. This leads us to create the World’s First Hybrid Crypto Asset called Nagaya that brings out the best of both worlds. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io or join our Official telegram channel at t.me/nagayaofficial
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