A year of economic turmoil has sent the Turkish lira plunging to new lows, and retail investors across Turkey (now Turkiye) are racing into cryptocurrencies in a desperate race to protect their economies from drastic devaluations.
President Tayyip Erdogan revealed that a cryptocurrency bill is prepared and ready to be presented to the Grand National Assembly (Turkey’s legislative chamber), and some analysts were quick to claim that it partially responds to large capital outflows to digital assets such as Tether and Bitcoin.
But the crux of the matter lies in the (in) stability of the lira – bleeding 40% of its value this year – something that was only interrupted for a fleeting moment by a currency support program promised earlier in December. .
The perilous slowdown in the lira can be directly attributed to a combination of continued interest cuts in the face of unreduced inflation fueled by covid, a knife in the back of an economy recovering from a currency crisis. 2018 debt.
Erdogan’s plan involves the Turkish state indexing deposits to lire to protect them against a future decline against hard currencies via state guaranteed reserves. The hope is to reassure citizens and stem the flow of capital fleeing the national currency.
The move briefly halted the downward pressure on the lira, with markets feeling invigorated by the increased purchasing power of citizens.
TRYUSD chart by TradingView
However, the fickle reality of a 30% month-on-month inflation rate along with a drastic imagining of the tax debts needed to support the deposit protection system quickly pulled the lira to new all-time lows.
What could Erdogan’s crypto bill hold in store?
Surprisingly, there is a palpable air of optimism about the legislation within the Turkish crypto community, analysts at Blockworks were quick to point out that there had been no significant divergence between the pound and stablecoins. such as Tether – with the value still following the USD – suggesting that there has been no capital flight out of crypto on local exchanges.
This is reassuring for the crypto markets and suggests that the bill is likely to offer a favorable crypto regulatory regime that will ensure investor protection (and more importantly for Erdogan – formalize the taxation and oversight rules). – it could even aim to create attractive conditions. to attract digital assets to the lucrative economy.
It would all be a stroke of remarkable fate – earlier this year the President said “We are at war with Bitcoin”.
But far from a turnaround, it is likely that the regulations were carefully crafted to lay the groundwork for a so-called digital book, which is a key part of Turkey’s current economic development framework (an attempt to recover on track in 2023).
In order to introduce the planned CBDC, it is first of all necessary that the Central Bank of the Republic of Turkey be granted the powers to exercise in the digital currency space. This is likely to inform the structure and nuance of any legislation adopted, under the guise of investor protection, taxation and capital outflows.