Russia’s strategy is quite clever; it continues to accumulate reserves by using dollar and euro for its exports while using ruble for one third of imports. By receiving 7-8 percent of its net foreign trade in ruble, it creates demand for its currency at the same time.More so, Russia is trying to recruit Turkey as a customer for its Russian made SWIFT alternative SPFS and again homemade credit card system MIR.
October 31 2019
Trading with domestic currencies and reducing dollar dominance is an issue that Turkey and Russia have long been declaring intentions about in diplomatic space.
President Erdoğan, back in late 2016, had suggested to Russia and Iran to “trade using national money” and proposed that “the importer pays in the currency of the exporter”. According to this proposal; Turkey would pay for Russian imports in rubles.
I had written back then that this proposal would be difficult to put into practice. Because only declaration of intensions existed, nothing else.
Similar news came up in early October; it was said that Russian Finance Ministry had signed a bilateral agreement with Turkey and with that “the usage of ruble and lira in mutual trade would gradually increase.”
Also, it was emphasized that a financial market infrastructure in accordance with the agreement would be created, and currencies of both countries would become more attractive for commercial institutions. Two points were underlined once again; Turkish banks connecting to the SWIFT alternative SPFS system, which Russia put in place last year after the Ukraine crisis, and extending the usage of Russian MIR cards in Turkey.
These two are not functional systems. We know nothing about SPFS. MIR, on the other hand, was on the agenda in 2017 but has not progressed at all since.
Let’s get to the point which resides in the data Russian Central Bank published on Oct. 29. A breakdown of foreign currencies Russia used in its trade with Turkey was published. According to the published data; Russia mostly deals in dollars in export transactions with Turkey from which it earns income. In 2018, for every 100 units of products Russia sold to Turkey, 11.3 percent of payments were in ruble, 84 percent were in dollar, 4.4 percent were in euro and 0.3 percent were in other currencies.
When Russia was paying for imports from Turkey, 31.8 percent were in ruble, 44.3 percent were in dollar, 22.2 percent were in euro and 1.7 percent of payments were in other currencies.
Three points require attention;
First, Turkish Lira is not mentioned in any of these payments. Its share in “other currencies” must be very low, if it exists at all.
Second, the share of payment-revenue currencies in 2013 total was close to that of today. Meaning that the intention to “trade with national currencies” did not materialize.
Third, by looking at the ratios, we see that Russia imports in rubles while exporting in dollars, when trading with Turkey.
Let’s look at these currency composition with trade volume weighted basis.
According to Turkish Statistical Institute (TÜİK) data; Russia imported 3.4 billion dollars worth of goods from Turkey in 2018 and sold 21.9 billion dollars worth of goods to Turkey. Which means that its trade surplus against Turkey was roughly 18.5 billion dollars. Its trade surplus in 2017 was 16.7 billion dollars.
So what happens when we look at these trade numbers using the foreign currency shares announced by Russian Central Bank? Russia paid 1 billion dollars worth of rubles for one section of its imports while receiving 2.5 billion dollars worth of rubles for one section of its exports. Therefore, Russia has received a net worth of 1.5 billion dollars of rubles from Turkey. For the rest of its net exports volume, Russia has received 17 billion dollars; 16.8 billion in dollars and rest in euros.
So it seems that in 2018 Russia has received 8 percent of its foreign trade surplus against Turkey in rubles. This accounts for 7 percent of its total exports.
Let’s remember again; this outlook is not new, Russian Central Bank data from 2013 show that it was the same in 2013.
Time for the question on everyone’s mind; where does Turkish Lira stand in this picture?
Turkish Lira has no name. It’s not in any of the statistics announced by Russian Central Bank – if it’s not lost among “other currencies”.
Russia’s strategy is quite clever; it continues to accumulate reserves by using dollar and euro for its exports while using ruble for one third of imports. By receiving 7-8 percent of its net foreign trade in ruble, it creates demand for its currency at the same time.
More so, Russia is trying to recruit Turkey as a customer for its Russian made SWIFT alternative SPFS and again homemade credit card system MIR.
Why is Putin pushing for MIR? Very simple; so that the almost 6.5 million Russian tourists that go to Turkey every year can make their payments in ruble when they return to Russia. This model would have worked if Russia accepted the ruble payments for gas Turkey buys. But this was never even mentioned.
It should also be noted that; according to the retrospective data published by Russian Central Bank, 2014 was the year when Russia accepted relatively more rubles for products it sells to Turkey (mostly natural gas). In March 2014 Russia received a ruble payment of 2.2 billion dollars worth.
It looks like Russia is still the profitable side in this by increasing its foreign trade surplus while also strengthening its reserves by isolating Turkish Lira and receiving payments of a bit of ruble along with mostly reserve currencies (dollar and euro).
Who is Uğur Gürses?
He graduated from Ankara University, Department of Economics at
Faculty of Political Sciences in 1985. He started his professional career at
Central Bank of the Republic of Turkey at Foreign Exchange
Transactions Division in 1986. He worked at various divisions on reserve
management, foreign exchange transactions and open market operations.
Uğur Gürses moved to private sector in 1994. He worked for banks as
executive manager. His main responsibility was on treasury activities.
After leaving banking sector in September 2000, Gürses started to make
TV programs on business and financial markets at CNN TÜRK.
Gürses had been regularly writing articles on business and economics for
Radikal Daily between 2001-2014 and Hürriyet Daily between May
After July 2018, Gürses started to share his views at his personel blog,
“Ekonomi Alla Turca” – www.ugurses.net
The Central Bank of the Republic of Turkey (CBRT) continues to be a part of the economic policy conducted by the government. The ground of the economic crisis was laid with the fire of a political crisis. It moved to a new level with the pandemic. Now, there is no possibility left that the Central Bank helps bounce back or curbs the situation.
The effort of “trivializing the issues” demonstrates the stance of Turkey's economy administration of “intervening on the symptoms and not on the issues.” It is the effort to sooth the society, to narcotize them by saying, “If you do not know, have not heard of it, if you do not care, then you are happy.”
Our economy administration wasted billions of cash foreign currency of the Central Bank and public banks just to maintain a self-styled economy policy and to keep the foreign exchange rate at a certain level. It is a pity that now, this economy management, with its collapsed economy policy, is resorting to the monetary tightening of the Central Bank.
Those who are ruling the country are spending so much energy on blaming vague foreign powers for all the wrong and bad management. If they could have channeled this energy to understanding the problems of the country, then we would have gone a long way and truly would have made these “foreign powers” envious of ourselves.
Turkish Treasury is “printing” forex bonds to create additional foreign currency for its own operations. Public banks, on the other hand, are spending their cash foreign currencies and replacing them with forex bonds the Treasury is printing.
For a long time, Ankara had eroded foreign currency reserves worth near 100 billion to hold the rate. Now, it has come to the end of the road. It has spent its last penny and left the rate to the markets. Thus, the “unheard of” invented exchange rate regime has collapsed.
Can the forex loss in Turkey be recovered without sending the bill to the public? If first signs of the establishment of political normalization, democratization and rule of law emerge in a powerful way in Turkey, then the “shrunken” foreign currencies will come back to the system.
If the ruling Justice and Development Party (AKP) sees an increase in erosion of their votes and the increased possibility of losing power in a possible election then it would "use all the ammunition till it is finished" for their own political continuity. But this would indeed mean leaving a “gigantic wreckage” for the citizens of the country.
The trend in that started just before the presidential elections in 2018 and accelerated after the elections changed the chemistry of the economy in Turkey. Private sector in Turkey was restricted in every aspect. From pricing to sourcing, to investment licenses, all regulatory higher bodies worked to make the entrepreneurs feel that ‘the party state’ was watching them at every step.
A currency, that is losing value and is not the good money to its own citizens, cannot be the good money of another country. Most probably those who declared they have switched to the Turkish Lira in Syria will be doing their payments in Turkish Liras and - even if it may be only a few pennies - they will keep dollars to store the value of their accumulation.
No matter how long or short the COVID-19 crisis lasts, a broad range of working masses, but especially the unskilled labor force will be the ones exceedingly affected. They will lose income and their jobs. As a result, inequality will spread on a mass scale and poverty will soar.
Ankara thinks it can obtain stability through the sale of foreign currency from the “back door,” which erodes reserves. Ankara has also resorted to bans and restrictions on foreign currency, but these are actually very old tools from the 70s.
The economy management in Ankara may have this thought of stopping the devaluation of the Turkish Lira by wounding the lira’s convertibility but actually it also damages the debt capacity of the Treasury.
What would we have included if we wanted to write a guideline for those who have the wish to intervene in foreign exchange rates but who do not have the adequate experience, but at the same time want to do it right? Taking into consideration today’s circumstances in Turkey, here is a list.
In those countries where it is presented as they have a “floating exchange rate regime,” if their central banks are intervening at the exchange rate, the name of this in economy literature is “fear of floating.”
Since the COVID-19 crisis erupted, Turkish Central Bank’s reserves fell nearly 20 billion dollars. Now, the thought of “Can there be a swap line opened from the U.S. Central Bank Fedreserve ?” is in question.
Turkey was caught with the coronavirus outbreak at a time when it was weak structurally. Just like in the COVID-19 epidemic, the underlying disease story is the story of those problems in economy which were “swept under the carpet” for a long time. Turkish government's economy policies after 2018 were based on bans, limitations and covering up of the symptoms rather than resorting to necessary steps to solve the problems.
Ali Babacan's unfulfilled desire, the “fiscal rule” theme features in the program of the newly established Democracy and Progress Party’s (DEVA) . Babacan had made preparations to start the practice of fiscal rule in 2010, until Prime Minister Erdoğan shelved this.
Even though its name is “floating exchange rate regime,” the current one in Turkey can only be called “commanded foreign exchange regime.” Some may object to that and suggest “managed floating rate regime.” If it was the latter, then the Central Bank would have openly done it. Everybody would have been informed of a rate regime which has targets, a framework and a system. But we do not know anything about this “dystopian regime.”
Talking about Turkey’s economy is like a stand-up show. Turkey’s Central Bank is as independent as the Fed, says the Finance Minister. This comparison can be uttered because of the mood created in Ankara where the government commands the economy. But even in regimes of command economic, there is interdict and logic.
Politicians may have an inclination to regard the Central Bank as a “cow of the government to be milked.” But it is logic blowing that those who have undertaken CB jobs have rolled up their sleeves and personally worked for that.
In the last two years, the economic policy team governing in Ankara that has been intervening on prices, interest and exchange rates with an iron fist has cost banking executives their jobs for making their own trade decisions in an open market. Turkey is supposedly an open market economy, but Ankara has been nudging market players under the table to the point that the market is “open” only in theory.
Both the consumption and investment data in the third quarter show a tendency toward “exhausted growth” in the private sector. I wrote at the end of October that this is the picture of weak, anemic growth. The economy is out of energy. With the economy in this weak and feeble state, Ankara cannot carry the country politically to 2023.
The "orchestrated" issue on the agenda last week was an effort to form public opinion about punishing comments on economy by jail sentences and monetary fines. Stories in newspapers were followed by a speech by Economy Minister Berat Albayrak the next day, who wanted to lay "thought infrastructure" for this.
The three-way wheel of the Turkish economy, which depended on the flow of foreign capital, domestic credit growth, and household consumption, has stopped. It seems like the politicians running the country in Ankara couldn't find the answer to "What awaits the Turkish economy in 2020?"—since they undertook a military operation in Syria to get back the votes they lost due to the economic crisis.
Soner Çağaptay and Raffaella A. Del Sarto write: The EU often praises itself as a promoter of democracy and regional stability by highlighting the power of its enlargement process to include new members in the “neighbourhood.” Yet in the case of Turkey, its ill-conceived policies may well have contributed to the opposite. A clumsy EU has repeatedly gotten its policy toward Turkey wrong, often inadvertently helping Erdoğan at key points during his rise while creating preventable tensions with Ankara.
The German government has said that the Erdoğan regime has in recent years increased its support for Milli Görüş, an Islamist group monitored by German intelligence services due to alleged extremist leanings. In its response to a parliamentary question, the German government has also emphasized the links between Milli Görüş and Egypt's Muslim Brotherhood.
The ruling AKP has turned down the opposition's demand for budget discussions to be aired live on the official channel of parliament, called TBMM TV. The opposition deputies have said that these talks need to be conducted in a “transparent” manner as it concerns the people, with a CHP lawmaker saying that Turkey has not experienced such a “dark period” in its history before.
An employee of the United States’ Istanbul consulate was handed five years and two months in prison on charges of aiding the movement of the U.S.-based Islamic preacher Fethullah Gülen. The court did not arrest Nazmi Mete Cantürk, meaning he will be free pending appeal.
HDP co-chair Mithat Sancar has said that the party condemns extremists' abuse of Islam to justify their violent actions, but also slams France's treatment of Islam in a row about cartoons of the Prophet Mohammad published by satirical magazine Charlie Hebdo.
Many prisoners in Turkey, particularly political prisoners, are held in facilities hundreds or thousands of kilometers away from their families, making it very difficult for visitation. Requests by prisoners for transfer to a closer penal institution are now being rejected by the authorities on account of the coronavirus.
As coronavirus cases surge in Istanbul, Governor Ali Yerlikaya said that he can be a "scapegoat" if anyone's looking for someone to blame. The governor also said that he has been working closely with Istanbul Mayor Ekrem İmamoğlu. “My job is not politics, it is service. To that end, I am continually in contact with İmamoğlu. You should know that we are working very well [together]. There is no problem whatsoever,” he said.
President Erdoğan has filed a criminal complaint with Turkish authorities against prominent Dutch far-right leader Geert Wilders saying that he had insulted him on social media. "Even though the crime was committed directly against the person in the presidential seat, the value that is being violated is the state's political government structure," Erdoğan's lawyers said.
Turkish police have apprehended seven ISIS militants who were preparing for attacks in the capital Ankara in the latest round of operations against the jihadist group. According to authorities, the militants were seeking to attack Oct. 29 Republic Day celebrations and Nov. 10 ceremonies that are held each year to commemorate Turkey's founding father Mustafa Kemal Atatürk.
The European Court of Human Rights (ECHR) has found main opposition Republican People's Party (CHP) leader Kemal Kılıçdaroğlu right in his case against President Recep Tayyip Erdoğan. While Turkish courts ruled that Kılıçdaroğlu "attacked Erdoğan's personal rights" in two separate speeches in 2012, the ECHR ruled that the country violated the main opposition leader's freedom of expression.
A coal thermal power plant in the Central Anatolian province of Eskişehir is predicted to make more than 11 million people ill over the course of 35 years, a health impact report for the project revealed. The Right to Clean Air Plaform reported that the pollutants from the Alpu Coal Thermal Power Plant will spread to 24 provinces and destroy local farming land.
A group of miners from the Central Anatolian district of Ermenek set off once again on their march to demand unpaid wages, only to be met with a gendarmerie blockade on Oct. 26. In a video showing the miners' exchange with officers, one of them is heard saying "We are angry. We are hungry, that's why we're yelling. You can't yell!"
One of downtown Istanbul's last remaining green spaces was rezoned to allow construction despite the protest of locals. Also designated as an emergency meeting point, the green space was permitted for the construction of a 10-story building.
Turkey's southernmost province of Hatay was rocked by an explosion on Oct. 26 and authorities said that two militants of the Kurdistan Workers' Party (PKK) were nabbed following the blast. Hatay Governor Rahmi Doğan said that the two militants were a part of a group of four who had flown from the Syrian town of Manbij to the Amanos Mountains in Hatay using paramotors.
A report prepared by a number of civil society organizations regarding trials in Turkey prosecuting conscientious objectors to mandatory military service in the country has influenced the Council of Europe's Committee of Ministers to pressure Turkey on recognizing the right to conscientious objection.
President Erdoğan and the newly-elected Turkish Cypriot President Ersin Tatar on Oct. 26 voiced their support for a two-state solution on the divided island of Cyprus. "We believe a two-state solution must now be brought to the table with a realistic proposal," Erdoğan said. Erdoğan also said that he would visit Turkish Cyprus on Nov. 15 and expressed his desire to have a picnic at Varosha.
The Britain-based Syrian Observatory for Human Rights has said that at least 78 Turkey-backed Syrian rebels were killed and dozens more were injured in Russian airstrikes on a military training camp in Idlib. Those targeted were in a camp belonging to Faylaq al-Sham, the monitor said, adding that it was the deadliest attack since the ceasefire came into force in March.
The second indictment against human rights defender and businessman Osman Kavala presents no new grounds to justify his detention and is politically motivated, said Human Rights Watch (HRW) and the International Commission of Jurists (ICJ) in a statement.
Russian Foreign Minister Sergey Lavrov has urged the UNESCO to release its report on the restoration works in the iconic Hagia Sophia as soon as possible. Lavrov said that for Russia Hagia Sophia is particularly valuable from the spiritual point of view.
Treasury and Finance Minister Berat Albayrak has said that the economy is growing despite the tumbling Turkish Lira. The lira weakened to a record low on Oct. 26, hit by investor unease over the central bank's decision last week to keep its policy rate on hold and various sources of geopolitical concern. Strains in ties with the United States, a row with France, a dispute between Turkey and Greece over maritime rights and the conflict in Nagorno-Karabakh have all unsettled investors.
Turkish monthly inflation was almost four times greater than the official rate in September, according to a new model developed by a group of academics and researchers. According to the independent Inflation Research Group (ENAG)'s first published finding, consumer prices in September rose 3.61 percent from the previous month, compared to the official Turkish Statistical Institute (TÜİK)'s calculation of 0.97 percent increase.
Turkish Energy Minister Fatih Dönmez said on Oct. 22 Turkey will operate the gas field which it recently discovered in the Black Sea on its own, but it may cooperate with foreign firms in terms of detailed work and equipment. The minister's comments came after President Recep Tayyip Erdoğan said on Oct. 17 Turkey had raised the estimated reserves of the field to 405 billion cubic meters after finding an additional 85 bcm.
The Turkish government has said that it "laughs off" boycotts imposed on Turkish products in Saudi Arabia, Morocco and United Arab Emirates. "We laugh off some countries' boycotts against Turkey. They should first learn to stand as independent countries," AKP deputy leader Numan Kurtulmuş said on Oct. 18.
Turkey's southeastern city of Diyarbakır is nestled in Mesopotamia and has a deep legacy spanning millenniums and civilizations. A recent discovery on the 8000-year-old Amida Höyük archaeological site has unearthed an 1800-year-old heating system that was quite sophisticated for the time.
Kurdish artist Zehra Doğan's work that she created during her two prison sentences between 2016 and 2019 are on display in Turkey for the first time. The artist was jailed on terrorism charges and gained international fame after finishing her second sentence and holding a show at London's Tate Modern.
Turkey's Presidential Symphony Orchestra will thrive thanks to the completion of its long-awaited music hall, Conductor Cemi'i Can Deliorman said. Having been in the works for 25 years, the music hall's large auditorium can seat more than two thousand viewers.
Alterations on Istanbul's iconic Hagia Sophia reportedly violated guidelines mandated under the site's "UNESCO World Heritage" status. Converted within two weeks of the legal ruling that allowed Muslim worship, the ancient structure's mosaics were unlawfully covered up, and any work on it was deemed practically impossible, architectural publication Mimarlık Magazine reported.