Ankara’s long-standing ambition to expand the use of the Turkish lira in foreign trade was back on the agenda this week as President Recep Tayyip Erdogan held talks with his Russian and Iranian counterparts in Tehran, rekindling debates on whether trading in the local currency is a viable prospect or just wishful thinking.

Since Russia and Iran supply most of Turkey’s energy needs, resulting in big imbalances in mutual trade, Ankara’s desire to trade in local currencies is understandable. The same goes for trade with China, which is a major supplier of investment goods and industrial inputs for Turkish manufacturers.

Erdogan’s government is faced with a growing foreign currency crunch and the battered lira continues to fall. Having lost 44% of its value in 2021, the lira has slumped 25% this year and inflation has spiked to near 79% amid economic woes fueled by controversial rate cuts last year. The dramatic depreciation of the currency has further reduced the appeal of trading in liras, and the runaway inflation makes it even harder, if not impossible, to find partners willing to deal in local currencies.

This, however, has not stopped Erdogan from promoting trade in local currencies, especially with Russia, Iran, China and Gulf countries.

Hit by Western sanctions, Iran and Russia have sought to boost trade in local currencies as well. On June 19, the day the presidents of Turkey, Iran and Russia met in Tehran, the Iranian Currency Exchange launched trading in the rial-ruble pair, with about 2 million rubles sold for more than 10 million rials in initial transactions, according to Iranian media. The country’s Central Bank governor, Ali Salehabadi, voiced hope the trading volume would increase down the road, hailing the move as an important step in furthering economic ties with Russia and countering global currencies such as the dollar and the euro, which, he said, have become “political tools of domination.”

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Written by Mustafa Sönmez