by Harry Clynch
Thursday, 5
May 2022
Dispatch
12:15

As inflation soars, Turks flee to crypto

With the Turkish Lira in free-fall, citizens are finding refuge in Bitcoin
by Harry Clynch
A worker cleans the floor next to a crypto exchange kiosk in Istanbul. Credit: Getty

Istanbul

Turkey is in the throes of a grim economic crisis. The Turkish Lira lost 44% of its value against the dollar in 2021, and has declined further this year so far. Figures published this morning show inflation running at almost 68%. Consumers have had their savings savaged and are struggling with ever-higher prices for essential goods.

While inflation is a global problem, Turkey is suffering particularly badly because of President Erdogan’s bizarre economic policies. He views higher interest rates as a ‘scourge’ because they apparently allow greedy foreign speculators to profit from the Lira. Contrary to all the laws of economics, he believes lowering interest rates will reduce inflation, and has sacked numerous central bank officials who have tried to resist this.

Many Turks are turning to cryptocurrencies in a bid to protect their assets from these policies, with crypto use increasing elevenfold in 2021. Turkish cryptoexchange Paribu grew its userbase from 600,000 to over four million in the same year. Global exchanges, such as Coinbase, are looking to expand into the country given this increased demand. In Istanbul, there has also been a proliferation of walk-in cryptoexchanges that allow consumers to get rid of their (increasingly worthless) cash quickly and easily. This is despite the Turkish Central Bank banning crypto for payments, and debates within the Islamic world regarding its acceptability.

Turkey’s experience chimes with a wider trend that suggests consumers in unstable economies are more likely to turn to crypto. With inflation in Nigeria running at over 15%, for example, one in three consumers have reportedly dabbled in digital currencies; in Argentina, where the rate of inflation is over 50%, crypto usage is predicted to increase by 235% this year; and over 10% of Venezuelans are using crypto as inflation approaches 500%. In many countries with free-falling currencies, crypto is thus seen as a way to store and preserve value.

This increased uptake might partly be attributed to the perception of the world’s foremost crypto, Bitcoin, as a hedge against inflation. While this is disputed, it is unsurprising that consumers are seeking alternatives as government-induced hyperinflation rapidly erodes hard-earned savings.

Another criticism levelled at crypto is its volatility, even though volatility levels in Bitcoin have been trending lower since July 2021. At the same time, the Lira has experienced very high degrees of instability. The currency dropped 15% on one single day in November, and 30% across the month as a whole. Indeed, at certain times this year, the Lira has been more volatile than Bitcoin. Relatively speaking, crypto could be seen as a safer option for citizens living in countries with unstable currencies.

As such, the Turks cannot be blamed for turning to crypto as a potential escape route from sky-high inflation. Embracing crypto may well prove to be a wiser choice than keeping the faith in a currency that has been severely undermined.

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Jim R
Jim R
1 month ago

If Erdogan were more sophisticated like his western counterparts, he wouldn’t simply declare that low interest rates are the cure for inflation. He would deny there was any inflation, then call it “transitory” when it could no longer be denied. He would make up a new monetary theory that explained that massive money printing wasn’t causing inflation. He would change the way inflation is measured so that it completely ignores massive increases in the cost of housing. He would blame inflation on a war that started long after the inflation did. The fact that a Ponzi scheme like crypto currencies has become ‘safer’ than fiat currencies tells you just how unsafe all of our fiat currencies have become. Interest rates are supposed to be set to ensure a ‘real’ return on debt above inflation – even if you believe inflation is only 7 or 8% in the west, why aren’t interest rates already at 9 or 10%? Too many people have forgotten the economic / political / social ravages of inflation – they are about to be reminded.

Last edited 1 month ago by Jim R
Katharine Eyre
Katharine Eyre
1 month ago
Reply to  Jim R

10 points for biting sarcasm!

Jake Prior
Jake Prior
1 month ago

Coming to a cinema near you too.

David Jennings
David Jennings
1 month ago

Without any specific knowledge about Turkey’s situation, I would presume the attaction of crypto currencies is not just abandoning the Lira but obtaining regulatory anonymity. In the old days one just exchanged lousy currencies for the USD. But doing that does not solve the problem, to the extent it can be done, of avoiding the government’s reach into Turkish bank accounts that hold those other fiat currencies. Only crypto currencies (and bed mattresses) offer that needed anonymity and only crypto accounts offer portability beyond borders.Given the behaviour of the Turkish government for the past two decades, any citizen would conclude crypto, despite ists many flasws, is better than the Lira and government’s ability to coerce compliance.