Creating and managing perceptions seems to have become a high priority for the government of President Recep Tayyip Erdogan, as it struggles to ease Turkey’s economic turmoil and reverse its sagging popular support ahead of elections next year. A case in point is the central bank and its depleted foreign reserves. Currency swap deals with friendly nations have become a tool to push up the bank’s gross reserve figures and gloss over the drain.

After the most recent currency swap deal, signed with the United Arab Emirates (UAE) last month, Al-Monitor has learned that preparations are underway at the central bank for similar deals with the central banks of the Turkic nations of Azerbaijan, Turkmenistan and Uzbekistan, as well as Libya, based on cooperation protocols signed in the past two years.

Though the swap deals entail the exchange of local currencies and provide no access to hard currencies such as dollars and euros, they serve to inflate the central bank’s gross foreign reserves in what is, in a sense, window dressing.

The central bank has increasingly turned to currency swaps because it has depleted its foreign reserves by selling hard currency via public banks in a bid to prop up the embattled Turkish lira and rein in foreign exchange rates, which are crucial for Turkey’s import-reliant economy. The bank burned through $128 billion in such back-door sales, apparently at below-market prices, in 2019 and 2020.


Written by Mustafa Sönmez