In which case would you ex­change your dol­lars?

Dünya Executive - - COMMENTARY - Acil SEZEN Colum­nist

The Turk­ish lira has been de­pre­ci­at­ing since 2010. Dur­ing this pe­riod, it only gained value for a year. Con­sid­er­ing the last six months, we have seen an av­er­age of 15.5 per­cent de­crease in value an­nu­ally. This ra­tio has al­ways been above in­fla­tion. For­eign ex­change as­sets of nat­u­ral en­ti­ties have seen their all-time high at $116 bil­lion. Fur­ther­more, if we take a look at the pe­riod that be­gan on Au­gust 10 with the ex­change cri­sis and now, peo­ple have ex­changed dol­lars dur­ing six weeks out of 46 and bought for­eign cur­rency dur­ing the rest. In the mean­time, the cost av­er­age has been be­tween 5.60-5.70 li­ras.

These are the things we al­ready know. Now let’s take a look at what’s com­ing. We have left the stage to our au­di­ence at the Bloomberg HT Ra­dio and asked them: “In which case would you ex­change your dol­lars?” The re­sponses are strik­ing:

-When I feel con­fi­dent

-When I’m sure that my money

won’t de­crease in value

-When I’m sure my pur­chas­ing power hasn’t dis­solved

-When in­fla­tion de­clines

-When Turkey’s CDS (credit de­fault swap) once again re­turns to 150-lev­els (it cur­rently stands at 350)

-When I see signs of struc­tural re­forms

-When I be­lieve that the law acts as an as­sur­ance of my prop­erty

Some in­vestors are con­sid­er­ing what’s go­ing on from an ide­o­log­i­cal stand­point and eval­u­ate the re­spon­si­bil­ity through gov­er­nance. Thereby, de­spite sea­sonal de­vel­op­ments, they choose to in­vest in for­eign cur­rency with­out tak­ing profit or loss into con­sid­er­a­tion. It is not easy to change this pat­tern of be­hav­ior. But there were other an­swers:

- My dol­lar cost is low. I’ll sell when it sur­passes 6 again.

-When the real es­tate mar­ket stirs, I will sell my ex­change and buy a prop­erty.

These are peo­ple who are equipped with a trader mind­set who claim that they can in­ter­change as­set classes. When we mea­sure the for­eign ex­change de­posits with M2 Money Sup­ply, the rate of dol­lar­iza­tion has de­clined to 54 per­cent. That is to say, 54 out of 100 li­ras in our pock­ets is for­eign money. We have only sur­passed that level when we hit 64 per­cent after the 1994 cri­sis. Peo­ple are buy­ing for­eign cur­ren­cies. Com­pa­nies are be­com­ing in­debted to for­eign cur­rency. Even the na­tion’s Trea­sury chooses to take a loan in for­eign cur­rency. What I mean is, every­one has a dif­fer­ent rea­son for hold­ing for­eign cur­ren­cies.

A dif­fer­ent dilemma ahead

But now, there’s a dif­fer­ent dilemma be­fore us. We have stepped into a rate cut cy­cle. The world is very sup­port­ive. We have seen rate cuts from South Africa, Rus­sia, Turkey and the U.S. We have re­ceived signs that the ECB will fol­low suit. In this en­vi­ron­ment, if the in­ter­est de­creases, how will it af­fect for­eign ex­change de­mand?

In­ter­est on de­posits have fallen around 2.5 points in two weeks. Lev­els be­low 20 per­cent have been seen in sev­eral banks. In­ter­est on de­posits are de­clin­ing in banks for two rea­sons: First is the rate cut sig­nal from the Cen­tral Bank and the sec­ond is the de­mand of low in­ter­est loans. Banks grav­i­tate to­wards gath­er­ing re­sources and leav­ing costs in the back­ground when the de­mand for low in­ter­est loans rises. But, that’s not the sit­u­a­tion we’re see­ing now.

Hence, when the banks don’t have any­where to off-load the re­sources they will gain, they are likely to play the role of a re­luc­tant buyer. Now as the Cen­tral Bank has re­duced rates, it is highly likely that the same course could be seen on de­posits to a cer­tain ex­tent.

What is miss­ing now is a price sta­bil­ity, we can­not con­vince peo­ple to switch to TRY be­cause we can­not en­sure that.

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