Turkish Lira Plummets 20% in One Day: Are Fiat Currencies Less Stable Than Bitcoin?
It’s been said that bitcoin will never become a real world currency because it’s too unstable. However, with the Turkish Lira plummeting 20% in one day, analysts are pointing out an important fact: some fiat currencies are less stable than bitcoin.
— Erik Voorhees (@ErikVoorhees) August 10, 2018
The Turkish Lira imploded earlier today, sending shock-waves across the globe. Investors were spooked by Turkey’s controversial economic initiatives and its exposure to Europe. Investors are also unconvinced that President Erdogan has the ability to steer Turkey through the crisis.
Turkey was hit with more bad news on Friday as President Trump announced that steel and aluminum tariffs would double.
The Turkish Lira is now the worst-performing emerging market currency in 2018. Its value has dropped 35.85% since the beginning of 2018. That’s a worse drop than the Argentine Peso, which has dropped 33.72% on the year.
Amidst the crisis, Erdogan is appealing for calm. Understandably, Erdogan wants to control the crisis before it turns into hyperinflation – like what we’ve seen in Venezuela or Zimbabwe in recent years. Erdogan is urging citizens to change foreign money into local Turkish Lira.
Countries experiencing hyperinflation:
Bitcoin solves this problem and helps millions of people.
— Pomp 🌪 (@APompliano) August 10, 2018
Citizens, meanwhile, feel it’s in their best interest to get off the sinking ship and sell Turkish Lira for a more stable currency – like the USD or bitcoin – before their wealth disappears entirely.
Meanwhile, outside analysts are urging Erdogan to raise rates to attract foreign currency.
“Seems like a complete crash, so they need to act now,” said Copenhagen-based Nordea Bank strategist Morten Lund in a statement to Zero Hedge. “The lira will keep falling if they don’t hike rates today.” Then again with Erdogan's stated preference that rates never go up, it is quite possible that nothing happens.”
Turkey’s bond market, meanwhile, is soaring as the currency drops. The yield on 10-year government bonds soared by 93bps to a new record high of 20.67%.
Turkey’s Economic Crisis Continues to Get Worse
Turkey’s economic crisis has worsened throughout the year.
However, the crisis accelerated this past week when the Financial Times reported that supervisors at the European Central Bank were concerned about exposure of some of Europe’s biggest lenders to Turkey. BBVA, UniCredit, and BNP Paribas, for example, all reportedly have large liabilities in Turkey.
There are concerns that Turkish borrowers might not be hedged against the Lira’s weakness. As the Lira drops, this makes it increasingly difficult to pay back foreign loans, causing borrowers to default.
The United States, meanwhile, isn’t doing Turkey any favors. Despite a recent visit of a Turkish delegation to Washington, the United States shows no signs of lifting crippling sanctions on the country.
President Trump just announced the doubling of steel and aluminum tariffs against Turkey, raising tariffs on aluminum to 20% and tariffs on steel to 50%. Trump made the decision to issue tariffs against Turkey, a NATO ally, over disagreements about defense policy as well as the detention of American pastor Andrew Brunson.
Should You Swap Turkish Lira for Bitcoin?
American nocoiners see “Buy Bitcoin” tweets after news about Turkey, Venezuela, etc. and roll their eyes. Fact is, the US Dollar is a historical anomaly. Fiat currencies ALWAYS get replaced by better, harder, sounder money. Sooner or later.
— Andrew (@adcustom) August 10, 2018
Bitcoin has proven its mettle amidst currency inflation. That’s why bitcoin and other cryptocurrencies are so popular in Venezuela, where bitcoin routinely trades at a premium over its international market rates.
Erdogan is urging Turkish citizens to swap their foreign currencies for Turkish Lira in order to avoid worsening the financial crisis. However, buying Turkish Lira could also be like jumping on a sinking ship: why would you trade a stable asset like gold or a foreign currency for a sinking asset like the Turkish Lira?
Crypto commentator WhalePanda (@WhalePanda) weighed in on the Turkish Lira crisis, tweeting, “Better buy bitcoin instead,” in response to Erdogan urging his citizens to buy Turkish Lira.
As the people of Turkey witness their own financial ruin with the collapse of yet another government controlled fiat currency, how does one still question the validity of a decentralized alternative that lies out of the hands of politicians, economists,and central banks? #Bitcoin
— Phil⚡️ (@PhilCrypto77) August 10, 2018
With the Turkish Lira dropping 20% in a day, it appears bitcoin is a more stable option for Turkish citizens wishing to preserve their wealth.
Other crypto commentators echoed the sentiment. BTC Strategist (@StopAndDecrypt), replied to an Associated Press tweet saying,
BREAKING: Satoshi Nakamoto appeals for calm amid currency drop, urges people to change local Lira into Bitcoin.
— BTC Strategist (@StopAndDecrypt) August 10, 2018
It’s possible the Turkish Lira will bounce back next week. It’s also possible that the Lira’s value will plummet even further, making anyone holding Lira in their accounts increasingly poor.
In any case, one of the advantages of bitcoin is that its value isn’t tied to the economies of any country or government. Relative to currencies like the Turkish Lira, bitcoin is very stable – and the plummeting Turkish Lira could illustrate just how useful bitcoin is in terms of preserving wealth amidst plummeting fiat currency prices.
If you’re Turkish you need to move your money out of Turkey ASAP. That’s why there is bitcoin. #Erdogan failed dictatorship and evil ways are finally going to bring down turkey. https://t.co/luAMzpOEr6
— Ross Gerber (@GerberKawasaki) August 10, 2018
Bitcoin will hasten the fall of weak fiat. Weak economies are most susceptible at first: Venezuela, Iran, Turkey but the trend will continue and the dominoes will keep falling. No fiat will be safe. https://t.co/0yLn4xFrhr
— Matt Odell (@matt_odell) August 10, 2018
The Failures of Central Banks: Exhibit A
Inflation vs USD since Jan 2018…
Turkey – 180%
Iran – 246%
Venezuela – 34,000%
👆 Bitcoin's newest supporters
— Kevin Rooke (@kerooke) August 10, 2018
— Nevermore (@NevermoreXBT) August 10, 2018