The Grand Bazaar in Istanbul is back as the Turkish financial capital's operational centre for FX transactions. It's been reinstated given consequences of Turkey's tight measures on FX transactions that take the form of macroprudential measures and non-capital controls and generate hard currency supply problems, local business daily Ekonomi reported on April 10.
From private companies to banks to citizens to public institutions, all economic actors are turning up at the Bazaar to meet FX needs.
Tweets: An unnamed bank has launched an initiative for its branches to collect physical FX (@e507).
Even the central bank has joined the institutions meeting their FX needs at the Bazaar. Each day it brings Turkish lira (TRY) 5bn to the Bazaar and collects around $260mn in exchange.
According to the central bank’s weekly balance sheet (A2. Foreign Banknotes FX (Thousand TRY) / USD Buying Rate), the national lender's physical FX stock rose to $9.6bn at end-2022 from $4.3bn at end-2021. The figure stood at $8.5bn at end-Q1.
The central bank carries out its transactions with an unnamed exchange office. The office subcontracts transactions to a total of four to five bureaux.
The central bank directly collects FX with the use of “wheeled anchor chests”. The chests are carried by interior ministry vehicles. Such an extraordinary operation has never been seen before.
Photos: The central bank is collecting physical dollars in wheeled chests (Credit: Ekonomi).
The “wheeled chest transactions” are also carried out by some other institutions. Reportedly, something of a traffic jam is regularly caused by the chests turning up at the Bazaar.
Even if a transaction is for a small amount of dollars, a great number of lira banknotes are required to secure it due to the current exchange rate. Thus, logistics companies are hired to carry out operations using the chests.
As a result of the high demand, the spread between the FX rates on the interbank market and the Bazaar have boomed.
As of April 12, the USD/TRY was hovering in the 19.30s, while buying prices at the Bazaar were in the 19.60s versus selling prices in the 19.70s.
The digital USD/TRY has lately taken off on another record-breaking spree. The latest record, set on April 6, is TRY 19.45. From early March, the pair shot through barriers in the 18.80s that for a short while proved an obstacle. It is now mainly trading in the 19.30s, with some spikes.
Amid the booming lira supply and hard currency outflows via record trade deficits, officials only keep the lira from entering into a nosedive by coercing bankers into blocking and gumming up domestic FX demand. Also supportive are unidentified inflows and support from “friendly countries”.
Chart: Unidentified FX inflows under the net errors and omissions account hit a record $27bn in 2022.
Another lira calamity would come as no surprise. It could happen at any time.
The turbulence-free mood on the global markets, meanwhile, remains intact. Turkey’s five-year credit default swaps (CDS) remain below the 600-level, while the yield on the Turkish government’s 10-year eurobonds remains around the 9%-level.
Tahtakale at the Grand Bazaar, known as the “Footed Bourse”, is the most famous over-the-counter (OTC) forex market in Turkey.
Do not ask where its FX banknotes come from. Ekonomi asked and was told that they arrive from the “shadow side of the real sector and Anatolia”.
Anatolia is famous for its “dollar mines”. The “shadow side” could, for instance, be dealing with the production of some “white goods”.
Some say there is actually a wellspring under the Bazaar. Sometimes, FX banknotes well out, sometimes gold. The late Nasrullah Ayan gives some hints about this mysterious source in his autobiographical book The Bourse King.
The other end of the well system opens into Switzerland.
For a taste of what is going on, we can recall an old story.
In 1985, Ahmet Ozal (then PM Turgut Ozal’s son), Gunes Taner (Turgut Ozal’s aide), Mehmet Percin (an MP) and Bulent Semiler (general manager of state-owned Emlakbank) held a meeting in a room at Dolder Grand Hotel in Zurich with Yasar Akturk (a drug smuggler known as “Barber Yasar”), Muhammed Sekerciyan (a Lebanese money launderer), Ugur Suzer (a fictitious exporter, or in other words a person who launders money via non-export activities), Hadi Urug (son of then army chief Necdet Urug, who was a partner of gangster Dundar Kilic), Yakup Kefeli (a money launderer), Suphi Asicioglu (a heroin trader), Turan Cevik (an FX/gold smuggler and fictitious exporter) and Emin Gorpe (a partner of drug smuggler Behcet Canturk), according to daily Cumhuriyet.
The newspaper also claimed that Turgut Ozal and Tekirdag MP Ahmet Karaevli were present at the meeting.
In May 1985, Turkey’s parliament lifted jail sentences for FX and gold smugglers.
In November 2008, Turkey’s Erdogan administration, then still within its first decade of rule, introduced the first of its so-called “wealth amnesty laws”. The legislation is still in effect. Quite simply, no one ever asks, “Where did you find it?” when someone brings a pile of money or trunk of gold into Turkey.