turkish lira suffers after erdogan cuts interest rates again

The Turkish Lira is sliding in slow motion this morning following an unexpected cut in the country’s benchmark interest rate despite the nation’s inflation rate standing at around 80% as of last month.

Yesterday, the country’s central bank reduced its policy rate from 14% to 13% and caught market participants by surprise. Turkey has been adopting very unorthodox measures lately as its President Recep Tayyip Erdoğan appears to have taken full control of all monetary policy decisions in the country.

Analysts have warned that yesterday’s decision could trigger another crisis for the lira at a point when most central banks across the world are taking the exact opposite roads as they are raising rates to keep inflation on a leash.

President Erdoğan has stated on several occasions that he considers interest rates to be “the mother of all evils” and has instructed the Central Bank of the Republic of Turkey to reduce rates despite this being detrimental to the nation’s macroeconomic backdrop.

Governors who have shown opposition to the head of the Middle-East nation have been relieved from their duties. So far this year, the lira has shed 26% of its value against the US dollar while it accumulates an 80% loss in the past five years.

Turks Turn to Cryptocurrencies to Protect Their Holdings

Countrymen have resorted to cryptocurrencies to protect their assets from losing their purchasing power as indicated by several research reports. According to crypto payments facilitator Triple A, the country ranked 19th in a recent survey with a total of 3.81 million residents currently owning crypto assets as of 2022 – a figure that accounts for approximately 4.5% of Turkey’s population.

However, this percentage pales in comparison with the findings of a survey from Statista back in June last year that ranked Turkey as the 4th country with the highest level of crypto adoption with 16% of respondents stating that they have used or owned cryptocurrencies at least once.

Meanwhile, the Chainalysis Global Cryptocurrency Adoption Index ranks turkey as the 26th country in terms of crypto adoption across the world.

Other countries suffering from similar macroeconomic distortions like Venezuela and Argentina have also seen their crypto trading volumes and adoption rates surge as residents rush to move their assets to the digital world to circumvent government-imposed restrictions on capital outflows.

Stablecoins and P2P Exchanges Are Used to Escape Forex Restrictions

Stablecoins are typically the most demanded crypto asset from individuals in beleaguered economies as they provide access to the North American currency without having to go through the traditional channels.

Peer-to-peer (P2P) exchanges typically facilitate the task of converting the local currency into one of the many available stablecoins like Tether’s USDT or USDC Coin (USDC).

In addition, users can earn money on their holdings via staking or by opening an account at a crypto savings platform. However, lax regulations may expose them to unexpected losses as was proven recently by the collapse of the Celsius Network and the Terra ecosystem.

The decentralized nature of the crypto market allows individuals and businesses to bypass government regulations when it comes to forex exchanges. In Turkey, some of the most popular crypto exchanges are Crypto.com, Binance, Coinbase, and Kraken.

Even though these platforms are not necessarily licensed to operate in this country, the fact that they can be accessed online and arrangements with local banks via partnerships with certain companies within the country facilitates the task of using them for buying and selling crypto assets.

That said, using cryptocurrencies in Turkey for making payments is considered an illegal activity. Hence, users may abstain from paying for goods and services with cryptos but this may not prevent them from buying digital assets to protect their wallets from being affected by the nation’s elevated inflation rate.

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