• Wed / 12 August 2020 / 15:29
  • Category: Economy
  • News Code: 99052216636
  • Journalist : 99999

The explanation behind Lira's fall

The explanation behind Lira's fall

Tehran (ISNA) – Turkish Lira has been recently hit new historical low. For further discussing this matter, we’d asked professor Hanke for a commentary.

Steve Hanke is a Professor of Applied Economics at the Johns Hopkins University in Baltimore (USA). He is one of the world's leading experts on currency boards and measuring and stopping hyperinflations.

Asked about the main factors of Lira's recent depreciation, Hanke said, “The main factor is the loss of confidence in the lira. A part of that loss in confidence results from the fact that the foreign exchange reserves in Turkey have been run down. And, as a result, the servicing payments for short-term debt obligations by Turks, as well as the financing of the Turkish current account deficit, are in jeopardy. In short, the Turks have "run out" of foreign exchange reserves”.

IMF warned many times about fast interest rate cutting, what is the probable trend in Turkey's inflation concerning what has happened in currency market? 

"The IMF is correct. President Erdogan has strange and incorrect ideas about economics. He thinks that if interest rates are lower, inflation will be lower. This is not the way economics works. The money supply is growing very rapidly in Turkey. That will cause more inflation, and higher levels of inflation will cause interest rates to go up, not down," professor Hanke said, adding that: "In short, interest rates follow the course of inflation. Inflation does not follow the course of interest rates".

While Iran and Turkey agreed recently on using national currencies in bilateral trade, Mr. Hanke believes that such decisions can't help Iran or Turkey to decrease volatility in markets: " You are talking about bilateral agreements between two volatile and junk currencies. They will remain volatile and junk."

Turkey attracted lots of foreign investment by its new citizenship law ( which allows foreigners to obtain Turkish citizenship by investing 250,000 $ or more in property), asking about whether this strategy (if applied) helps Iran to attract more investment, Professor Hanke said, “No. On balance, foreign investment has been exiting Turkey on a massive scale. That is one reason its foreign reserves are dwindling”.

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