Suspension of lira transactions by European banks hints at trouble to come
Move comes after Ankara temporarily imposed similar bans on UBS, BNP Paribas and Citigroup
Luxembourg-based Clearstream Banking and Belgium-based Euroclear Bank have jointly decided to suspend Turkish lira transactions over a shared electronic communications platform.
The decision is effective from May 18, according to a statement posted on Clearstream’s website.
The reason for the move was related to the liquidity restrictions on the lira due to the current coronavirus pandemic, Clearstream said in the statement. However, it recommended that its customers should maintain a buffer amount in their cash accounts in lira, and that they should monitor their securities settlements, trading on the Borsa Istanbul (Istanbul Stock Exchange) and cash transfer activity to prevent any failed transactions. Orkun Saka, visiting fellow at London School of Economics and assistant professor of finance at University of Sussex, said it was not a good sign for international investors.
“However, it also depends on why these investors transact with Turkish financial markets. If the speculative players who simply trade Turkish lira to make profit from a possible crisis situation are discouraged by ‘sand in the wheels’ policies, it is not too bad for Turkey,” he told Arab News.
“On the other hand, 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,” he added. Experts say the decision will make it more difficult for foreign investors to obtain and make transactions in lira. It is also a sign that the convertibility of Turkish lira might be at risk. Some financial analysts have also drawn attention to the possibility that Turkey might begin introducing capital controls to deflect the lira’s weakness, which would discourage external financing of the national economy. The currency hit an all-time record low of 7.2 lira per US dollar on May 7.
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 once they had all satisfied their liabilities with local banks.