2021 was a rough year for the people of Turkey, as the country experienced rapid devaluation of its currency, the lira. Things haven’t improved in 2022 as the lira has suffered since Russia invaded Ukraine as sanctions and export bans have resulted in soaring commodity prices. According to official government reports, Turks are now suffering from 54.4% year-over-year (YoY) inflation, the highest in 20 years. inflation turkey rate The central bank estimates that inflation will only be 23.2% YoY by year-end, but that estimation was made assuming the price of crude oil would be around $80 per barrel. The outbreak of war has caused the price of oil to spike well above $100 at the time of writing. Soaring commodity prices from the war likely mean the central bank is underestimating year-end inflation. To put things into perspective, Russia and Ukraine supplied 80% of Turkey’s $4 billion grain imports last year. If the price of that one single commodity increases drastically, that alone could cause Turkey’s inflation rate to rise. The purchasing power of the lira is tragically vanishing right before Turkish citizens’ eyes. But the truth is, this currency crisis has been developing for a long time now. Over the last five years, the lira has lost 75.57% of its value against the U.S. dollar. How Did Turkey Get Here? To put it simply, since 2012, Turkey has suffered from taking on a large debt burden coming out of the Great Recession, political instability that led to a failed coup d’état in 2016 and U.S. sanctions and tariffs on its steel and aluminum industries further damaged its economy. Here’s a helpful timeline of events to get a sense of what Turkey’s last decade has been like: All of these events have culminated in what is unfolding today with the collapsing lira. Over the last two years, we’ve witnessed all of the telltale signs of what happens when a currency collapses and how a government and central bank attempt to save it. The Central Bank of the Republic of Turkey (CBRT) and President Tayyip Erdoğan appear desperate in their efforts to try to combat soaring inflation and stabilize the lira. In the past year, we saw them attempt every tactic in the government playbook to fight inflation. Here are eight ways that Turkish authorities have tried to combat inflation so far: 1. Implementing Price Controls El Flaco 🌋🇳🇮⚡ on Twitter: “How Turkey fights consumer price inflation: Authorities go to supermarkets, check prices and threaten fines if prices are ‘too high’” / Twitter One example of this price fixing is with bread and Turkish bakeries. The Chamber of Bakeries fixed the price of bread, but now the bakeries are warning that bankruptcy looms as they are forced to adhere to the government’s price fixing while their sales are down. 2. Pleading With Turkish Citizens To Sell Gold/Dollar Holdings To Support The Lira “I ask my citizens to invest their foreign currencies and gold in various financial institutions and bring those assets into the economy and production.” — President Tayyip Erdoğan, March 24, 2021, in a speech at the Congress of the ruling AKP In a last-ditch effort to stop Turkish citizens from fleeing the lira and finding protection elsewhere, President Erdoğan has tried, on multiple occasions, to encourage them to hold on to their freefalling liras in the name of national pride. The government recently announced a new gold conversion deposit account that promises “risk-free income” in order to encourage people to bring their “under-the-mattress” gold into the banking system. 3. Depleting Foreign Currency Reserves To Prop Up The Lira In mid-January, the Turkish central bank’s foreign currency reserves dropped to their lowest level since 2002, to $7.54 billion dollars. This means that since November 2021, approximately 75% of the central bank’s FX (foriegn exchange) reserves had been sold off to support the lira. Since those January lows, Turkey’s FX reserves have surged back after the central bank made some swap deals with the United Arab Emirates. Goldman Sachs estimates that the nation’s gross FX reserves fell around $20 billion in December 2021 alone due to central bank currency interventions. President Erdoğan has been selling his country’s FX reserves at a rapid pace to prop up the falling lira. 4. Demanding Exporters Convert 25% Of Income To Liras This measure is aimed at boosting Turkey’s currency reserves by forcing companies to keep some of their revenues from their sales abroad in liras. These actions are an attempt to stop companies from selling their liras for stronger foreign currencies. 5. Increasing The Minimum Wage By 50% To ease public discontent, President Erdoğan increased the minimum wage by 50%, the highest raise in the 50 years. Higher wages definitely help those suffering on the ground, but there’s also a risk of higher wages leading to even more inflation, bankruptcies, and unemployment as businesses face increased labor costs. 6. Injecting State Banks With Capital To Boost Lending Turkey’s Sovereign Wealth Fund recently injected $2 billion into two of the largest Turkish banks to help improve their balance sheets and stimulate lending to corporations. It also followed that capital injection with an additional $1.6 billion injection into its largest lender, T.C. Ziratt Bankasi to “strengthen the capital of state banks and improve their lending power.” The government is attempting to keep credit flowing in its banking system by injecting them with cash to make up for the eroding lira on their balance sheets. 7. Providing State-Protected Lira Accounts To combat investors hoarding dollars to protect themselves, the Central Bank of Turkey announced that they would support accounts that converted foreign currencies to liras. Essentially the central bank is offering protection to accounts that are converted to liras by covering any changes in interest rates or exchange rates from when the conversion happens. This strategy has resulted in favorable results for the central bank as Turks have flocked to the protected lira accounts. Funds have steadily flowed into these “FX-protected accounts,” reaching 290 billion