With the Turkish Lira in free-fall, citizens are finding refuge in Bitcoin
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.