Erdogan pulls off another another wild move: the Turkish Lira gets decoupled from the US Dollar

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Erdogan's great splash will be paid for by the Turkish people. Inflation will rise even higher as more Lira is pushed into the market.

Turkey is in a bad situation. Its economy is in shambles. Its currency is plummeting at an alarming rate. As a result, Turkish President Recep Tayyip Erdogan, a part-time want tobe caliph, has taken urgent attempts to save the dwindling Lira. Nothing, however, can save Turkey. To put it bluntly, its President has gone insane. Erdogan has lost control of his faculties. He is allowing Islam to influence the economic policy of Turkey.

You may rest confident that Turkey's days are numbered. Erdogan has taken a fatal choice as to the rescue of Turkey's currency in the latest blow to the country's economy.

Turkey has been concerned by the withdrawal of foreign bond investors. Foreign residents held 25% of Turkish bonds at the height of the country's economic boom; currently, foreigners hold slightly over 5% of Turkish bonds.

But today, even Turkish investors are stashing their cash in foreign exchange deposits. That is what has led to the downfall of Lira’s fortunes. Now, Erdogan wants to appear to solve this problem, which is why he has announced a new lira investment instrument that is denominated to foreign exchange rates.

Erdogan’s Hilarious and Self-Destructive Plan

Following Erdogan's announcement of his 'dollarisation' plan to preserve Turkey's currency, the Lira saw a brief comeback. But take it from us: under the weight of this strategy, Turkey will fall. Erdogan is committing the worst blunder of his life, and it will cost him dearly.

The new instrument provides a dangerous and temporary answer to Lira's demise. Turkey's government guarantees investors the same return as forex markets if they convert their foreign money into Lira and put them in a savings account with a set maturity date.

The investor will still receive an official interest rate return if the FX markets fall below the official interest rates, according to Middle East Eye. Turkish Foreign Minister Nureddin Nebati stated in a statement that the new instrument will have maturity terms of three, six, nine, and twelve months.

This means that Turkey will now encourage investors to keep their money in the nation rather than putting it in foreign exchange accounts. Turkey will do so by giving the same rates of return that the foreign exchange market dictates. Lira is now in high demand among investors. Even though the markets were closed, according to the Union of Turkish Banks, more than $1 billion had already been sold through the banks while Erdogan spoke.

How Turkey’s Public Will Pay for Erdogan’s Misadventure

Do you know why Turkey's economy is in such a mess right now? It's because Erdogan is a zealous Islamist who bases his judgments on Islamic economics. Yes, as unbelievable as it may seem, this is a thing.

It's even popular in Islamic countries. Erdogan is adopting such economics in its full because he tries to portray himself as the Caliph of the Muslim world. The interest rates at Turkish banks are exceptionally low. Low interest rates have made loans more affordable in Turkey, and almost everyone may take advantage of them.

This has resulted in a monetary overflow, or 'inflation,' in the Turkish economy. The Lira has lost 35% of its value versus the dollar in the previous month. This year, the currency has lost 50% of its value.

The foreign exchange rates are significantly higher than those in Turkey. For example, if the foreign exchange rate is 40% and the interest rate in Turkey is 14%, the difference is 26%.

Erdogan is now promising investors 40% interest if they retain their money in Turkey and buy more of it. But who do you believe will foot the bill for the interest rate differential between Turkish banks' actual rates and those promised by the Turkish government? The government's coffers.

That means that Erdogan's great splash will be paid for by the Turkish people. Inflation will rise even higher as more Lira is pushed into the market. The Treasury will pay any difference between the foreign currency rate and the Lira, which will increase the national debt.

Turkey is hardly the first country to make such a move. It attempted to do so again in the 1970s. What occurred, do you think? The initiative finally resulted in a massive credit expansion by local banks, resulting in a fresh round of inflation. This time will be no different. Erdogan will be held responsible alone for his religion.