Exchange Rate of Turkey

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Exchange Rate in Turkey
Introduction
The Lira (Turkey’s currency) has fallen by nearly 10% over the last three years amid economic concerns, a huge national debt, as well as political instability (Jones 1; Gunay 23). This currency is currently not at its best compared to other currencies like the US dollar and Euro but is slowly recovering (Sonmez 1). Like other factors, such as economic and security circumstances, political events in Turkey also influence the exchange of rate of this nation’s currency. Political events significantly shape Turkey’s currency exchange rate in numerous ways, such as the creation of political risks, uncertainties, and tensions, as well as the enactment of laws and implementation of policies.
These events have a considerable impact on the exchange rate since they create risks (Sönmez 1). Political risks are detrimental to Turkey’s currency exchange rate as they make the nation’s market unattractive for foreign investment (MacBride 1). For example, when the Turkish government failed to create coalition options in 2014, many investors chose to exit the Turkish market (Sönmez 1). These investors removed approximately $30 billion in capital from the Turkish market. Consequently, the Turkish Lira (the nation’s currency) fell to nearly 3 Liras to the United States dollar. The Lira decreased in value due to this trend of decreasing foreign investment and capital.
Political events also significantly determine how Turkey’s currency will be in comparison to other currencies since they create political uncertainties (Gunay 23; Bilen and Duran 1).

Some of the events that have caused changes in the nation’s currency include the 2016 attempted coup, and proposed changes to the constitution through a referendum (Acton 1; Jones 1). In particular, the Turkish president has expressed the need for parliament to approve the new controversial draft constitution, while some section of the country is still not for it (Acton 1; Focus-Economics 1). As a result, it has become difficult for the nation to arrive at a positive decision. This uncertainty has hurt the Turkish Lira, making it almost impossible to trade equally with other currencies, such as the US dollar, Australian dollar, and the Euro, among others.
Furthermore, political events have a great effect on Turkey’s currency in the global market as they shape economic policies. Political events that affect Turkey’s exchange rate include the enactment of laws and implementation of policies. Fiscal regulations and policies are crucial to maintaining a stable economy, and in Turkey’s case, policies have failed to do so, mainly as a result of negative political events (Butler and Devranoglu 1). For example, the passing of restrictive regulations has made it difficult for small companies to achieve positive growth and efficiency (The Economist 1). The result has been weak growth across the country, which has translated into an unstable Lira. Similarly, the Turkish government’s weak monetary policy has led to high rates of consumer debt (from 5% in 2002 to nearly 55% as at 2013) (The Economist 1). Consequently, consumers have been forced to use their savings, reducing the nation’s GDP and subsequently the strength of its currency.
Political events also determine the exchange rate of Turkey’s currency as they may develop tensions between Turkey and its trading partners. For example, the 2015 political tensions between Turkey and Russia (due to a clash in policies) reduced this nation’s growth potential (The Economist 1). These tensions still influence Turkey’s economic system and subsequently its currency in comparison to other global currencies since Turkey greatly depends on trade with nations like Russia (Shane 1). Russia is a key market of farm exports from Turkey, in addition to supplying Turkey with energy and considerable numbers of tourists. For this reason, any political disagreement between Turkey and Russia or any of its trading partners will weaken the nation’s currency.
Additionally, political events considerably shape turkey’s currency in relation to other currencies since they bring hope to the masses. Case in point, when President Erdogan won the 2015 elections, the nation’s market responded positively (The Economist 1). In other words, President Erdogan’s victory resulted in a surge in the Turkish Lira against the US dollar, growth in the country’s stock index and GDP, as well as a source of hope within the public. This business euphoria made the nation’s currency perform well against other currencies before this trend came to a halt. The Turkish Lira was stable for a while since political chaos, and coalition bargaining had not begun.
Conclusion
The Turkish currency (the Lira) greatly responds to political events in and outside the country, and this affects its position in the foreign market. Political events have a great impact on the exchange rate of the Lira in a variety of ways. These events significantly shape the Lira’s exchange rate by creating risks, which make Turkey an unfavorable destination for foreign investors. Besides that, political events cause uncertainties and tensions, which also have an adverse effect on Turkey’s Lira, in addition to shaping the country’s fiscal policies, and creating a sense of hope within the public. Political events are therefore crucial to the growth or decline of a nation’s currency.

Works Cited
Acton, Gemma. “Turkish Lira Plumbs Record Lows against the Dollar on Economic and Political Fears.” CNBC, 10 January 2017, www.cnbc.com/2017/01/10/turkish-lira-plumbs-record-lows-against-the-dollar-on-economic-and-political-fears.html. Accessed 14 February 2018.
Bilen, Seda Sezer, and Aram Ekin Duran. “Fears of a Currency Crisis in Turkey as Lira Dips.” Deutsche Welle, 1 November 2017, www.dw.com/en/fears-of-a-currency-crisis-in-turkey-as-lira-dips/a-37092504. Accessed 14 February 2018.
Butler, Daren and Nevzat Devranoglu. “Turkish Lira hits record low against Dollar on Strains in U.S. Ties.” Reuters, November 2017, www.reuters.com/article/uk-turkey-lira/turkish-lira-hits-record-low-against-dollar-on-strains-in-u-s-ties-idUSKBN1DL1HJ. Accessed 15 February 2018.
Focus-Economics. “How are Security Concerns and Political Chaos affecting Turkey’s Economy?” Focus Economics, 16 January 2017, www.focus-economics.com/blog/posts/how-are-security-concerns-and-political-chaos-affecting-turkeys-economy. Accessed 14 February 2018.
Gunay, Samet. “Is Political Risk still an Issue for Turkish Stock Market?” Borsa Istanbul Review, vol. 16, no. 1, 2016, pp. 21-31.
Jones, Dorian. “Turkish Currency Slump Spurs Political, Economic Fears.” VOA News, 13 January 2017, www.voanews.com/a/turkey-lira-value-drops-erdogan/3675486.html. Accessed 15 February 2018.
MacBride, Elizabeth. “At a Tipping Point: A Currency Crisis roils Turkey’s Economy.” CNBC, 13 December 2016, www.cnbc.com/2016/12/13/at-a-tipping-point-a-currency-crisis-roils-turkeys-economy.html. Accessed 15 February 2018.
Shane, Daniel. “Turkey’s Currency Slumps on U.S. Visa Spat.” CNN Money, 9 October 2017, money.cnn.com/2017/10/09/investing/turkey-lira-slumps-dollar/index.html. Accessed 14 February 2018.
Sonmez, Mustafa. “The more Trump sinks, the more Turkey’s Currency and Government recover.” Al-Monitor, 29 August 2017, www.al-monitor.com/pulse/originals/2017/08/turkey-united-state-more-trump-sinks-more-lira-recover.html. Accessed 14 February 2018.
Sönmez, Mustafa. “Will a 3-lira Dollar lead to An Economic Crisis in Turkey?” Hurriyet Daily News, 24 August 2015, www.hurriyetdailynews.com/will-a-3-lira-dollar-lead-to-an-economic-crisis-in-turkey-87395. Accessed 14 February 2018.
The-Economist. “Erdoganomics.” The Economist, 6 February 2016, www.economist.com/news/special-report/21689874-turkey-performing-well-below-its-potential-erdoganomics. Accessed 14 February 2018.