Turks may decide to go along with Mr Erdogan’s lira-buying ploy. More likely they will not
and Mr Erdogan declared victory. But it was not long before it started to fall again.
Officials say Turks have shifted about $3bn into currency-protected lira deposits since the announcement. But that is too little to account for the rally. The main factor was intervention by Turkey’s central and state-owned banks, which bought about $7bn-worth of lira over two days. That pace of buying is unsustainable. When it stops, the scheme will have to stand on its own two feet. Turks may decide to go along with Mr Erdogan’s ploy. More likely, they will not..
Should it fail, the consequences could be still worse. Turkey’s taxpayers will be on the hook for bailing out its depositors. That could require painful cuts elsewhere—an exercise in austerity for the benefit of the relatively prosperous Turks who have savings. Alternatively, if the government cannot tolerate that choice, it will have to print more money. If so, a scheme to compensate people for currency debasement would end up only debasing it further.
Mr Erdogan dismisses anyone who explains such things as part of an “interest-rate lobby” controlled by foreign powers. Like all populists, he ascribes setbacks to plots by his enemies. He is right that the obstacles to his economic fantasies are people: his own people, and their efforts to cope with his misguided policies. But perhaps the president is not aware of that. At the peak of his power in 2014, Mr Erdogan moved into a new 1,100-room presidential palace.
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