What future for the Turkish lira after the appointment of a conservative staff to the Central Bank?

ISTANBUL – The Turkish lira continued its sharp decline against the U.S. dollar as the appointment of a conservative chief of staff to Turkey's central bank, which is expected to lead a shift in the country's fiscal and monetary policies under the supervision of new Finance Minister Mehmet Şimşek, who has a liberal vision to resolve the currency crisis and inflation.

The Turkish currency fell by more than 10% over the past two days, and reached in trading on Friday to the level of 24.5 liras per dollar, in a daily decline of 1.75%, exceeding the expectations of many international financial institutions.

Turkish President Recep Tayyip Erdogan announced the appointment of Turkey's top economist in the US financial sector as a new conservative staff of the central bank, in a move that reinforces the path back to traditional fiscal and monetary policies, which Simsek described at a press conference after his appointment as "based on rational and predictable foundations."

Reuters on Thursday quoted Turkish bankers as saying Turkey's central bank reserve data showed an increase of about $3 billion in central bank deposit accounts last week.

Ankara has secured about $28 billion in currency swap agreements in recent years with the United Arab Emirates, Qatar, China and South Korea, most of which have entered the Turkish central bank's total reserves.

Prominent Turkish economist Hafidha Arkan appointed a new governor of the Central Bank of Turkey (Anatolia)

Depletion of foreign reserves

However, data published on Thursday showed that the net foreign reserves in the Turkish central bank reached $ 100.5 billion on June 5, a decrease of $ 7.<> billion.

With depleted reserves and an inflation crisis still weighing on the economy, the June 22 meeting of the Fiscal and Monetary Policy Committee (MPC) is a test of the nature of the fiscal and monetary policies that the country's new economic team will work on.

Alin Alban, economic affairs editor of the Turkish newspaper "Daily Sabah", confirms that the Turkish government has used various tools to maintain the stability of the Turkish lira, but with Şimşek taking over as finance minister, it seems that the Turkish lira has been released to approach its "real levels."

Alban says in his interview with Al Jazeera Net that opening the door for the Turkish lira to reach its real value is the first indication of the change in economic policies expected by observers.

According to academic and economist Mukhles Al-Nazer, the new policies are expected to cause the lira to fall to its fair value, which is between 24 and 25 liras to the dollar, to stabilize at this point if supply and demand balance.

Al-Nazer stressed in his speech to Al Jazeera Net that the Turkish economy is currently suffering from a deficit in the balance of payments, and can not be sought to improve the value of the currency, but must maintain its stability or even reduce its value in order to stimulate exports and revive the tourism sector.

Strong CV

The new governor of the Central Bank of Turkey holds the very wrath of her Ph.D. in operations research and financial engineering from Princeton University, and has held the positions of Managing Director of Goldman Sachs and Co-CEO of First Republic Bank, respectively.

According to Anadolu Agency, Arkan has significant experience in banking, investment, risk management, technology and digital innovation, and is a member of the Advisory Board of the Department of Operations Research and Financial Engineering at Princeton University.

Difficult task

The task of Simcek and Arkan seems highly difficult in light of the global economic conditions that cast a shadow on the Turkish economy, which is also suffering from domestic crises.

According to Mukhles Al-Nazer, a visiting professor at several Turkish universities, the new economic team is forced to live with the US federal interest rate at its highest level in decades, making investors' money go strongly towards the United States and making it difficult for emerging countries to attract it.

He considered that raising the interest rate is the last thing that benefits the Turkish economy from a set of many steps required, including the abolition of the protected lira deposit, the unification of interest rates, the freedom of the stock exchange to work without intervention to save the collapsed shares, non-interference in the exchange rate and a return to the flexible exchange rate.

Nazer asserts that Şimşek needs to take this kind of action so that Turkey does not turn to the Argentine model of inflation levels are very high, at a time when the currency is constantly collapsing and the country is close to bankruptcy.