Spotlight: Turkey moves to stabilize lira amid impact of fluctuations

As the Turkish lira plunges to a record low, Turkey has made a series of lira-based decisions to convert their foreign exchange into local currency.

The Turkish lira fell 17 percent since 2016, making it this year's worst performing emerging market currency. The lira reached a historic low of 3.60 versus the U.S. dollar on Dec. 2.

Turkey's economic activity has been recovering in the last quarter of 2016, while fluctuations in the Turkish lira will not make a "durable" impact on the economy, according to Central Bank Governor Murat Cetinkaya.

Yet, Turkish President Recep Tayyip Erdogan Monday called on citizens to turn their foreign currencies into liras or gold. He also vowed to allow commerce with China, Russia and Iran to be conducted in local currencies as part of measures to shore up the tumbling currency.

"If we buy something from foreign countries, we will do that in their currency; if they buy something from us, they will do it in our currency," he said.

As a first step, the Turkish government announced that accommodation expenses and other expenditures of a Turkish delegation to Russian on Monday, chaired by Prime Minister Binali Yildirim, would be paid in the Russian ruble.

The country's main stock exchange, Borsa Istanbul, was the first institution that converted all its cash assets into lira, a few hours after the president's remarks on Monday.

Turkey's Directorate of Religious Affairs stated that hajj and Umrah visits would be charged in liras in order to support the lira amid its sharp deterioration in value.

Turkish media reported some small and medium-sized enterprises across the country heeded their president's call, offering free haircuts, food and grave stones to those who could prove they converted foreign currency into the lira.

The Turkish Privatization Authority announced privatization tenders would be held on a Turkish Lira basis.

On Wednesday, Turkey's Defense Ministry announced that it converted 262.7 million U.S. dollar and 31.3 million euros to lira from the defense industry support fund. The same day, the energy market regulatory authority decided to hold natural gas distribution tenders in Turkish Lira.

Furthermore, all telecommunications operators announced that they would make the last payment for the advanced 4G technologies in liras. As a result, they will pay the installment valued at 657 million euros in lira in April 2017.

On Nov. 24, the Central Bank's Monetary Policy Committee used its rate-hike weapon with an unexpected hike of 50 basis points in its policy rate, despite President Erdogan's push to lower interest rates.

Presidential spokesman Ibrahim Kalin said Turkish citizens will protect Turkey's economy and "national values."

But the move had slight impact to the dollar since the same day the European Parliament released a decision asking Brussels to freeze membership talks, sending it to a record high of 3.47 Turkish liras.

Erdogan argues low interest rates would attract investors to the country, which would also contribute to the economic growth.

The upcoming weeks will be crucial for Turkish lira ahead of a key FED meeting on Dec. 14. Domestic developments in the country, such as constitutional amendment moves, fluctuate the lira as well, local economists said. Endit