Financial blow to Erdogan as two top banks halt trading in Turkish lira

Two major settlement banks in Europe suspended transactions in the Turkish lira on Monday, casting further doubt on the currency’s stability.

The suspension by Clearstream Banking in Luxembourg and Euroclear in Belgium will make it more difficult for foreign investors to obtain and conduct transactions in lira. “This will restrict the behavior of international investors bringing money in and out of the country,” Orkun Saka, visiting fellow at the London School of Economics and assistant professor of finance at the University of Sussex, told Arab News. “So far, the government has been temporarily applying defense mechanisms to fend off speculation, but there is a risk that these may turn into permanent features of the Turkish financial markets.

“If these regulations become permanent and start scaring investors who have productive capacity and intentions in the country, this could translate into a huge loss in the long term.”

The convertibility of Turkish lira might be at risk. Some financial analysts have suggested Turkey might introduce capital controls to deflect the lira’s weakness, which would discourage external financing of the economy.

The currency hit a record low on May 7 of 7.2 lira to the US dollar. On the same day, Turkish authorities introduced a transaction ban on BNP Paribas, Citigroup and UBS — a controversial move that was lifted after four days.

The concerns over “speculative attacks” on the currency remain fresh in the minds of Turkish officials. Pro-government media accuse unidentified financial institutions of currency manipulation, while Turkish state-owned banks have sold significant amounts of foreign currency in their battle to defend the currency.

Turkish President Recep Tayyip Erdogan has blamed the lira’s plunge on “those who think they can destroy our economy and corner us by exploiting financial institutions abroad.”

The volume of trading in the lira has fallen considerably as other foreign banks suspected further measures might be taken against them.

HIGHLIGHTS

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The suspension by Clearstream Banking in Luxembourg and Euroclear in Belgium will make it more difficult for foreign investors to obtain and conduct transactions in lira.

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The currency hit a record low on May 7 of 7.2 lira to the US dollar.