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For policymakers using currency debasement as a “solution” to their problems, there could be nothing worse than cryptocurrency. Its status as a “hard” currency alternative to fiat money makes cryptocurrency a friend to people living in hyper-inflationary environments. The anonymity of many cryptos also makes them desirable for people in oppressed nations. That combo is hitting Turkey like a double-whammy. Laura Pitel and Eva Szalay report on Turks flocking to cryptocurrency in the Financial Times, writing:
Despite having a masters degree and a stable job, a middle-class lifestyle has felt increasingly unobtainable in recent years for Orhan, a 39-year-old Turkish web security expert.
Frustrated by his rapidly eroding purchasing power, Orhan last year joined the millions of Turks who have flocked to cryptocurrencies amid soaring inflation and a plunge in the Turkish lira.
“The lira is as volatile as a shitcoin,” he said, referring to the catch-all term among crypto enthusiasts for failed digital currencies. The lira plunged by about 45 per cent against the dollar in 2021. “When there are so many economic problems [in our country], people are looking for other ways to make money,” said Orhan, who did not want his second name published.
Orhan earned a profit of $4,000 on his initial $1,500 investment and cashed in his gains to buy himself a new computer.
The surge in interest in cryptocurrency — and a scandal last year that saw the sudden shutdown of a Turkish crypto exchange that left hundreds of thousands of customers unable to access their funds — has alarmed the country’s authorities who now want to regulate the sector.
President Recep Tayyip Erdogan has said a cryptocurrency law will soon be presented to parliament. He has said his government is engaged in a “war” against cryptocurrency.
The governor of Turkey’s central bank, speaking to foreign investors last month, said he was “uncomfortable” with the amount of money flowing into crypto assets.
These anxieties are shared by global regulators, who view cryptocurrencies as volatile and speculative. Many have concerns about illicit activities such as money laundering and terrorism financing facilitated by digital assets.
The rise in the use of digital assets can dampen the impact of monetary policy decisions and lessen official control of national currencies. China has banned both bitcoin and its creation, or mining, partly due to concerns that it would lose control of money flowing into cryptocurrencies.
The popularity of bitcoin has soared in countries with volatile currencies and high inflation. Turkey has the highest crypto transaction volumes in the Middle East, where volumes expanded 1,500 per cent last year compared with 2020, according to a report on global adoption trends from specialist data provider Chainalysis.
“Research suggests that many in the Middle East have turned to cryptocurrency to preserve their savings against currency devaluation, a trend we see in other emerging markets like Africa and Latin America,” the report said, adding that research suggest “a highly significant relationship between lira devaluation and [the amount of] lira trading on cryptocurrency exchanges”.
While Turks have long chosen to protect themselves against lira volatility by keeping their savings in dollars or euros, data suggest that some of them are turning to “stablecoins”, which are pegged to hard currencies or other assets and act as a bridge between digital coins and national currencies.
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