‘Lira as only legal currency will cause total chaos’

President Recep Tayyip Erdogan has effectively banned Turkish entities from conducting business in dollars or euros, triggering a brief rally in the battered lira. Then he doubled down on demands for the central bank to cut interest rates, triggering a fresh sell-off in the national currency.

The Turkish leader published a decree yesterday, making the lira the only legal currency for most contracts concluded between Turkish entities for any kind of product or service. Many of his own government’s largest contracts — including for building motorways and operating turnpikes, bridges and airports — are currently priced in dollars or euros.

Some agreements will be exempt from the new rules under conditions to be specified by ministries, according to the decree, which didn’t elaborate. All others that are either priced in or indexed to foreign currencies will have to be amended within 30 days.

This decree will create “total chaos” and be impossible to implement in the given time frame, said Hulusi Belgu, head of the national organisation of shopping malls. His members have about $15 billion in collective debt and price about 70 per cent of all their rent contracts in a foreign currency, he said.

“How will this debt be repaid if contracts are converted to liras?” Belgu said.

About half of the Turkish banking system’s deposits are in foreign currencies, partly a result of runaway inflation. The nation’s companies have racked up more than $330 billion in foreign debt, with a foreign exchange shortfall of $216 billion. It’s common in Turkey to index contracts for everything from cars to rents and business services to dollars or euros.