Who is at the sharp end of Turkey’s currency crisis?(Al-Monitor,August 14,2018)
ARTICLE SUMMARY After years of bold borrowing from abroad, Turkish conglomerates, including government cronies, are…
MUSTAFA SÖNMEZ – Hürriyet Daily News/Jan.12. 2015
The Japanese yen, the British pound, Norwegian, Swedish and Danish krone and the Canadian dollar were all currencies that continuously lost value against the U.S. dollar. The rates are, of course, different; the currencies of emerging countries, including Turkey, lost values in different rates.
On the other hand, there are also currencies that did not lose value, but gained value, against the U.S. dollar: For example, the Chinese Yuan, as well as the South Korean won and the Australian dollar.
Most of the 52 world currencies that the IMF monitors were shaken before the U.S. dollar value rose. The fastest devaluating currencies were the Iranian riyal and the Russian ruble, with the Turkish Lira taking third place.
The local currency of Iran, a country which has been at odds with the U.S. for many years, the riyal, rapidly lost value against the dollar in 2013 and 2014. The annual average of the riyal in 2014 was 38 percent below its annual value in 2013. Iran went through shock devaluation such as 102 percent on July 3, 2013. After the devaluation, the riyal continued its course with small fluctuations.
After the shock fall in oil prices, Iran’s export income decreased and now it is anticipated with curiosity whether or not the country will opt for a new shock devaluation.
The most severe tremor against the dollar was experienced by the Russian ruble. Russia, which has the fifth biggest reserve in the world with $454 billion, had to go through tough times in 2014 against the sanctions Westerns countries imposed upon it because of the Ukraine and Crimea issues. When the flight of capital outside the country was added to the blow of the fall in oil prices, the ruble rapidly lost value. Even though the Russian Central Bank tried to stop the blood loss by increasing interest rates, this did not help much.
The first half of 2014 was calm and one dollar was only about 38 rubles toward the end of September. However, with October, blows came one after the other and at the last day of the year 1 dollar was up to 57 rubles. The annual average of the dollar in 2014 was 38.6 rubles. The average in 2013 was 32 rubles. Thus, based on annual averages, the ruble lost value 21 percent against the dollar.
The loss of the lira
It was Turkey that emerged after Russia among the local currencies that devaluated the most in 2014. As of mid-year in 2013, the value loss of the lira increased. Especially with the influence of the political risk that climbed with Dec. 17 and 25 corruption operations of 2013, the devaluation of the lira accelerated.
The climb in the dollar was curbed for a while with the intervention of the Central Bank with high interest rates in January 2014; it accelerated again as of September 2014. Turkey, which always had a dose of political risk as well as economic fragility, had increased geopolitical risks because of the hot war in the Middle East, resulting in receiving one half of foreign capital inflow. While this was a factor constantly pushing dollar prices upward, especially with the news that the U.S. may draw forth the increase in interest rates, prompted foreigners to change position and leave Turkey, keeping the dollar high. The yearly average was 2.20 liras. The dollar which completed 2013 at an average of 1.91 liras, thus, was up 15 percent.
Other emerging currencies
While Russia and Turkey, among emerging countries, took the top positions on the list in 2014 by losing 21 percent and 15 percent respectively, there were falls in other emerging countries’ currencies. The local currencies of those emerging countries that grew their economies with external source inflow were negatively affected with capital outflow depending on their fragility levels.
The Indonesian rupiah lost nearly 14 percent from 2013 to 2014. The South African rand devaluated nearly 12.5 percent. The Brazilian real lost 9 percent against the U.S. dollar. The value losses of the Mexican peso and the Indian rupee stayed at lower levels such as 4 percent.
A European emerging country, the Czeck Republic’s koruna devaluated by 6 percent, while the Hungarian forint went down 4 percent. The Polish zloty, on the other hand, had a slight gain of 2 in 1,000 against the U.S. dollar.
The euro and other European currencies
The euro’s annual average of 2013 was $1.33. The 2014 yearly average was the same. Thus there was no change in terms of yearly averages. However, this should not make us underestimate the euro’s rapid loss of value in the second half of 2014.
The euro started 2014 with $1.36 and remained at that level until mid-July. However, it experienced a constant value loss the rest of the year and completed the last day of 2014 with $1.21. While in the first half of the year, the dollar/euro parity was 1.37, in the second half it went down to 1.27. In other words, there was a 7 percent loss of value in the second half, compared to the average of the first half. Expectations are that the loss of value in the euro will continue in 2015.
First of all, the U.S. dollar started 2015 with a strong move and the euro/dollar parity came to its lowest level in the past four and a half years. The rapid devaluation of the euro against the dollar is important in terms of global competitiveness and in terms of the relationship of Turkish exportation and its tourism industry with the euro. The parity first becoming 1.20, then 1.18 and then falling as low as $1.14 would mean an average of 7 percent loss in profits for the Turkish exporters and tourism managers.
Besides the euro, among European currencies, the British pound completed the year with more than 5 percent devaluation against the dollar. The Norwegian krone lost an average of 7 percent yearly against the dollar.
It was not only the currencies of developed countries that lost value against the U.S. dollar in 2014; currencies of central countries also experienced significant losses. Among those non-European rich countries, the Japanese yen lost more than 8 percent value against the dollar in 2014 compared to 2013. The Canadian dollar also closed 2014 with a loss of 7.3 percent against the American dollar.
Among the currencies which did not lose value against the U.S. dollar were oil producing Middle Eastern countries. Bahrain, Saudi Arabia, Oman, Qatar, Libya, the UAE and Kuwait currencies kept their values against the dollar.
Even though 2014 was the year of the U.S. dollar, certain currencies gained value against the dollar.
The main currencies the values of which exceeded their 2013 averages in 2014 averages have been the Chinese yuan with 0.8 percent, the Swiss franc with 1.2 percent, the Korean won with 3.9 percent and Australian dollar with 6.7 percent.
What will happen in 2015?
The shocking climb of the dollar in 2014 is expected to continue in 2015. With the interest rate increases the U.S. has announced, it is possible that the direction of capital movements will turn absolutely to the U.S. This, starting with those emerging countries that manage their economies with foreign resources, will result in the continuation of loss of values of local currencies of those countries that have experienced loss of blood in 2014.
The loss of blood of the euro against the dollar that started in the second half of 2014 is expected to continue in 2015 and the parity is expected to go down to 1.15.
When it comes to Turkey, what kind of a course the dollar that closed the last day of 2014 with 2.32 liras will follow is an important question. The course of the dollar will be determined by, again, capital movements that made it climb in 2014 when the capital inflow to Turkey was one half. The loss of appetite of the capital would bring new losses and especially with the start of interest rate increases in the U.S., one dollar may peak to 2.50 liras; it is expected. Nevertheless, where the annual average of the dollar in 2015 will land after standing at 2.20 liras in 2014 is a wait-and-see situation.