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Turkey plans to go for “under the mattress” gold in order to prop up the currency.
Turkey is campaigning to entice the savers population back to the LIra with a programme aimed at putting billions of dollars’ worth of “under the mattress” gold that is the household gold with its population into the banking system, the idea was floated by the Turkey’s Finance minister on his visit to London. Turkey’s Finance Minister, Nureddin Nebati, made his first trip to the UK since being appointed at the end of last year. He said that the government hoped that 10% of the estimated $250 billion worth of gold stored by Turks on their properties could be converted into lira under the initiative.
According to Nebati, the Turkish government has inked contracts with five gold refineries to convert jewellery turned up under the scheme into gold bullion, which would be added to the country’s central bank reserves. 30,000 gold stores, would play a key role in the programme, which will build on a bigger package of emergency measures announced in December with the goal of halting the lira’s freefall, which lost 44% of its value against the dollar in the last year.
Gold has been a traditional gift for weddings and births and has long been a popular way for Turks wary of the banking system, in addition to their country’s history of inflation to safeguard their riches. However the new deposit plans have had some success, drawing around $23 billion in all. On the other hand economists are sceptical that they can provide a long-term solution to the lira’s mistrust.
The country’s January inflation rate was 48.7% and its harmful real rates of interest are about 35 percent. Its widely believed by the investors that Turks’ long-standing scepticism about the currency would be difficult to overcome. Some suggest increase in interest rate for the investors which will also benefit the government but it will not account to 25 billion dollars.
Nebati, was hired in December and he adopted an optimistic tone in a series of London seminars aimed at bringing back successful international traders who had recently deserted Turkish stocks and bonds.He has supportedPresident Recep Tayyip Erdogan’s divisive policy of keeping interest rates well below inflation, predicting that inflation will decrease dramatically by the end of the year.
Caution however needs to be taken that the government’s efforts to keep the lira stable by micromanagement devices like the deposit plan, rather than basic economics, would eventually backfire.
The rate of interest is the determinant of the worth of foreign money, It is impossible to de-dollarize by administrative measures. They might be able to make it function for a year, but then it’ll explode apart. It’s the common belief of investors.
But it will be tantalising to see where these measures take the Turkish Lira.