At the end of last year, the Turkish government encouraged its citizens to exchange their high dollar and euro balances for lira with an innovative insurance offer.

She promised to compensate for any exchange rate losses of the lira.

In fact, the performance of these deposits, which have an interest rate of 14 percent or more, is linked to the dollar.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

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After the first holding period of three months, the costs of hedging for the state budget and the central bank are now becoming visible.

According to reports in the Turkish media, they amount to more than 10 billion lira, which is the equivalent of 675 million dollars.

The aim of the action was to stop the downward slide of the lira, which had lost 44 percent of its value measured in dollars in the past year.

The stabilization came first: for several weeks, the lira held at rates around 13.50 lira per dollar.

With Russia's attack on Ukraine, which hit Turkey hard several times, the currency devalued again.

It is the worst performing emerging market currency this year, after the ruble.

The state authorities are nervous: According to a report by the finance agency Bloomberg, the banking supervisory authority warned credit institutions against speculating against the lira or supporting others in doing so.

Central Bank Governor Şahap Kavcioğlu said on Thursday the bank is monitoring current account risks stemming from rising energy prices linked to Russia's invasion of Ukraine.

Savers and business followed the government's call

Compared to the rate when currency insurance was introduced, the discount is now more than 12 percent.

Currently, 14.84 lira have to be paid for the dollar, one lira was only worth 6.7 dollar cents on Thursday.

The compensation for savers who followed the call – and in parts of the economy the pressure – of the government is now correspondingly high.

According to the Financial Market Authority, Turkish investors hold the equivalent of $236 billion in foreign currency accounts.

The Sabah newspaper quotes the Ministry of Finance as saying that 591 billion lira ($40 billion) was in accounts at the start of the week, which are protected against devaluation risks for up to 12 months.

More than a million accounts have been opened.

Part of the deposited funds may also come from the sale of gold,

Since the insurance against currency-related depreciation runs for up to one year, the payments known to date only reflect part of the risk.

Based on the total number of protected accounts, it currently amounts to up to 35 billion lira, which corresponds to $2.4 billion.

However, the conversion is irrelevant for Turkey's foreign exchange position because the difference is paid in lira.

But the central bank, which is extremely offensive in its monetary policy, can print it.

With an inflation rate of 54 percent, the key interest rate in Turkey is still 14 percent and the central bank is showing no signs of changing its policy under pressure from President Recep Tayyip Erdoğan.

A line through Erdogan's lira bill

However, the attack by Russia and its consequences for the global economy thwarted Erdoğan's plans.

Strong price increases for energy raw materials, which the country has to import to a large extent, are reflected in rising inflation.

The dependence on grain imports from Russia and the Ukraine makes the situation even more difficult due to sharply increased prices.

In addition, tourism from the two states, which account for more than a quarter of the guests, is likely to shrink sharply this year.

Turkey had high hopes for an upswing after two years of Corona.

Since the foreign exchange income of 35 billion dollars hoped for from the tourism business is hardly achievable, Turkey is now opening its “foreign exchange insurance” to all investors from abroad, including those without Turkish citizenship.