Dollarisation in Turkey surpasses record set during country’s 2001 economic crisis

Dollarisation in Turkey surpasses record set during country’s 2001 economic crisis
By Akin Nazli in Belgrade December 9, 2021

The share of FX-linked deposits in total deposits placed with Turkish banks had leapt to a record high of 62.2% as of December 3, central bank data showed on December 9.

The record resulted from the lira crisis that has seen Turkey’s currency collapse in value. FX-linked deposits declined by $1bn w/w to $231bn in the week ending December 3—but the severe lira depreciation fuelled their lira-denominated value.

The previous record level of such deposits was registered as far back as October 2001 at 61.5%—the year of 2001 brought the greatest economic crisis experienced by Turkey in recent history.

Indicators on the current economic turmoil are exceeding the historic financial tumult suffered in 2001. They are now comparable with what was seen at the end of the 1970s, when a-several-years-long great depression in Turkey ended with the military coup in 1980 that led to rule by a junta for three years.

Also on December 9, central bank data showed that foreign investors’ lira swap stock with Turkish banks fell further by $2bn w/w to $2.9bn.

The figure was recorded at $24bn as of March 19, prior to the dismissal of the previous central bank governor by presidential decree.

It should be noted that the figure stood at more than $60bn in 2018 (Chart below by @VeFinans).

Remaining foreign capital flows via the equity and lira bond markets are by now at negligible levels.

As of December 3, the central bank’s gross reserves declined to $124.1bn from $126.4bn a week previously, while the net reserves dropped to $22.5bn from $24.7bn.

When the central bank’s $60.4bn of off-balance sheet swap stock is excluded, the net reserves sink to minus $37.9bn as of December 3 from minus $36.2bn a week previously.