Is Turkey In Monetary Distress? The Impact of Crypto Regulation
Is Turkey In Monetary Distress? The Impact of Crypto Regulation
The situation in Turkey has been quite rocky for some time now. Politically, it is a rather divisive country with an almost totalitarian president. Economically, it is a broken country that does not believe in the Turkish Lira, its own national currency.
Given this whole situation, a significant part of the population has embraced cryptocurrencies. However, this is not as bullish as it seems: It is occurring out of necessity in order for citizens to not lose their purchasing power.
Recently, President Recep Tayyip Erdogan delivered the news that surprised many. The Lira has lost about 34% of its value in the last three years. Amidst this, Erdogan announced that the draft for crypto regulation is almost ready.
Said project will be sent to the Grand National Assembly, Turkey's legislative chamber. This confirms the Turkish government's intentions of not using cryptocurrencies anytime soon.
Why Has The Value of the Turkish Lira Plummeted?
The dangerous fall of the Lira can be directly attributed to a combination of several factors. First, the political divide played an important factor in the loss of confidence in the system. Then comes the COVID19 pandemic which caused the country to experience continuous interest rate cuts.
It was a kind of magic recipe for disaster. This proved to be a knife in the back of an economy yet to recover from the 2018 debt crisis.
To prove everyone wrong, Erdogan's plan calls for the Turkish state to index Lira deposits to other currencies. This would protect those deposits from future falls against hard currencies through state-guaranteed reserves.
The hope is to reassure citizens and stem the flow of capital fleeing the national currency. However, the people simply no longer believe in the Lira and its stability.
Erdogan’s War Against Crypto
The truth is that this is not the first time President Erdogan has shown a negative attitude towards crypto.
In April 2021, the government banned the use of bitcoin for payments across the country. At that time, they claimed that crypto assets were not subject to regulation or a centralized body.
So the prevailing belief on the part of the government is that using cryptocurrencies is not safe at all. That is the reason why they want to regulate crypto. However, they completely ignored the principle of cryptocurrencies — decentralized money without any central institution influencing the ecosystem.
He later reaffirmed his position in a meeting he held with students in Mersin. There, he claimed they were at war against bitcoin and would fight to destroy its use in the country.
Crypto Regulation in Turkey: What Can We Expect?
However, there is still little hope for the regulation. It is expected that it will not be a total ban on cryptocurrencies, but rather tax regulations. Many expect regulations on whether exchanges are considered currency exchanges or banks in the eyes of the government.
This event caused a wave of reactions among the people and different politicians. One of the first to express his opinion was Mustafa Elitas, deputy chairman of the ruling Justice and Development Party (AK Party) Group. After the meeting, Elitas said that the common opinion was that the law should be enacted quickly.
However, Elitas also said the media misinterpreted the facts. According to him, the Turkish government is planning to regulate crypto to protect investors from malicious content — not a total crackdown on crypto.
The Turkish government feels some urgency to start regulating crypto soon. This urgency is because many of the representatives have had problems coming and going from abroad. They also fear manipulations that may occur in the market. Such manipulations are the primary reason why they believe regulations are necessary.
Elitas also mentioned that he will prepare a text regarding the changes to be made. He claimed crypto representatives believe that there should be a tax for this system. He also stated that they expect such taxes to work without any problems.
Regulation And Its Impact On Turkish People?
But how could these regulations affect the population? Well, many wage earners decided to invest in cryptocurrencies. Crypto has been an alternative to cope with the growing inflation that the country has suffered.
For many others, it has been a way to survive the labor restrictions derived from the pandemic. Investing in cryptocurrencies has secured many people's savings and the ability to pay their debts. It has been like finding the gold pot at the end of the rainbow.
But how could these regulations affect the population? Well, many wage earners decided to invest in cryptocurrencies. Crypto has been an alternative to cope with the growing inflation that the country has suffered. For many others, it has been a way to survive the labor restrictions derived from the pandemic. Investing in cryptocurrencies has secured their savings and the ability to pay their debts - it is finding the gold pot at the end of the rainbow.
It is estimated that between 7 and 16% of Turkish people invest and use cryptocurrencies. This puts the Eurasian country in the fourth position worldwide with over 1.6B trading volume.
However, the Turkish government is planning to regain the confidence of its citizens in its legal tender. To do so, they launched a savings program in which people can have savings in dollars and convert them into Lira when needed.
Many experts in the field presented their ideas and suggestions on regulation at the meeting. The result? remains to be seen. The new regulation is expected to introduce some changes to the Capital Market Law. Hopefully, this will help the Turkish people recover their economy