As the Turkish government devalues the lira, Turks are flocking to gold, bitcoin, and foreign currency

Turkey exemplifies the dangers of inflation and allowing authorities unrestricted access to money.

When you see it at the grocery store, Christmas gifts, and the gas station bill, it's impossible to ignore the growing cost of everything. Inflation isn't simply an issue in the United States; prices are rising all around the world, or, to put it another way, the buying power of many countries' currencies is eroding. Turkey is a good illustration of this, as individuals rush to spend or swap lira-denominated wages before the currency loses even more value. It's a scary warning of the dangers of giving governments full freedom to interfere with our money at a time when officials seek to squeeze out independent cryptocurrencies and even destroy anonymous currency.

The Wall Street Journal reported last week that "the Turkish lira's quick slide—13 percent on one day this month and approximately 38 percent since the beginning of the year—resulted in a flood of Turks swapping their liras for dollars, euros, and foreign currency."

For foreign-exchange brokers, the currency's worth isn't merely a curiosity. It symbolizes the purchasing power of people's wages, the money received by storekeepers for their sales, and the cash received by businesses for their goods and services.

"I had never known such a miserable existence. I go to sleep, and when I wake up, the costs have increased. I paid 40 lira for a 5-litre can of (cooking) oil. When I returned, the price had increased to 80 lire "In November, a widowed mother of two told the Associated Press. "As a country, we don't deserve this."

Turkey's official inflation rate is at 20%, but independent analysts estimate it to be more than twice that. As a result, the lira can still be used to make purchases, but it is no longer a store of value. To put cash aside for a rainy day is to watch it deteriorate to the status of toilet paper. This isn't Turks' first go-round with unreliable money, which is why they long ago developed the habit of keeping part of their savings denominated in other, more-stable currencies.

"About 59% of retail bank deposits are now in foreign currencies, up from nearly 57% the week before," The Wall Street Journal added. 

Dollars and euros aren't the only alternatives to the lira.

"Turks have traditionally used gold as savings and there may be as much as 5,000 tonnes of it 'under mattresses', with more added after the recent buying spree," Reuters reported last year even before the currency lost so much of its value.

Tellingly, even though Turkish banks accept deposits in both gold and foreign currency, many people avoid them out of fear the government might seize private funds to bail itself out.

"Smart Turks are keeping their savings at home, whether in gold or FX," The National Interest noted earlier this year. 

Looking for a safe haven, many people also take to cryptocurrency. While volatile, independent digital currencies appear to be a better bet than a lira that loses value by the day. Bitcoin and its competitors can also be transferred over long distances and across national borders.

"The latest economic turmoil has led to a surge in cryptocurrency trading in the country, with investors hoping to gain from bitcoin's recent rally and shelter against inflation," reported The Guardian in April.

The Turkish government quickly outlawed bitcoin as a means of payment for goods and services, yet trade continues.

The reason for the lira's depreciation is well known. Turkish President Recep Tayyip Erdogan, in opposition to practically every economist on the globe, believes that low interest rates and cheap money drive a vibrant economy that fights inflation. His comments, which have been branded "crazy" by some, don't appear to have had much of an impact on the currency's value. Despite this, he sticks to his guns and fires those who disagree with him.

Instead, Erdogan has resulted in an exploding money supply, diluting the value of the currency and driving Turks to despair. Of course, Turkey is not wholly alone in this. While the United Kingdom, the eurozone, and the United States have not boosted the quantity of money in circulation as quickly as Turkey, comparable "stimulus" programs have dramatically increased the number of dollars, euros, and pounds in circulation since the outbreak began (measurements are in M2 since the U.S. reclassified M1 last year). Economists predicted that when the amount of money in circulation expanded, inflation would follow.

Desmond Lachman, a resident fellow at the American Enterprise Institute, warned Reuters in June that "this money supply expansion is just so much quicker than anything we've seen." "I'm not sure how you don't have inflation," says the narrator.

Sure enough, the IMF notes in its October World Economic Outlook that "Headline inflation has risen rapidly in advanced economies and emerging market and developing economies since the beginning of 2021," though it hopes for an improvement next year. 

Pointing to Turkey and other countries that use printing presses to pay their bills, The Economist warned last month: "As policymakers in rich and poor countries alike confront the enormous economic and budgetary costs of covid-19, some may be tempted to depart from norms around monetary and fiscal policy. The result, in some unhappy places, could be inflation that is too hot to handle."

Fortunately, Turks were able to save part of their money by investing in gold, bitcoin, and less volatile foreign currencies. These alternative sources of value serve as safe havens from the lira's unreliability as a result of reckless government decisions. Officials don't like it when individuals abandon their regulations and put their riches out of reach, as seen by the Turkish government's crypto limitations. Governments all over the globe are debating whether or not to replace bitcoin with government-controlled digital currencies, or possibly abolish traditional currency and coins altogether, in order to bring economies under more central control and administration.

To everyone who cares about freedom and privacy, the prospect of eliminating alternatives to government-controlled currency has always been terrifying. The misery of Turkey's depositors, shoppers, and enterprises demonstrates that, if done correctly, such a move may bankrupt all of us.

 

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