President Recep Tayyip Erdogan has urged Turks to sell foreign currency for lira to improve the chances of success of a new dollar-linked bank deposit system.
Custodians deposited 163 billion lira ($12.1 billion) in new accounts intended to protect depositors from lira depreciation, Erdogan said after a cabinet meeting. The flows increased from the 131 billion liras announced by the country’s finance minister on Friday.
Turkey introduced a new deposit system on December 20 after the lira fell to a record low against the dollar. The currency lost 44% of its value last year but stabilized in January, losing 1.4%.
Turkish state banks are pressuring their customers to sell foreign currency and place capital in new lira accounts, Reuters reported.
The pound’s losses against the dollar triggered inflation, which accelerated to 36.1% annualized in December, the highest level since 2002.
According to data released on January 7 by the industry watchdog, the 163 billion liras in new deposit accounts constitute about 3% of the total 5.420 billion liras deposited in the Turkish banking system. Foreign currency deposits of 3,510 billion lire represent 65% of this amount.
State banks have imposed efficiency criteria to compel their employees to convince their customers to convert their foreign currencies into liras.
A private export sector told Reuters that bankers who visited him tried hard to sell the program, even though he explained that it was not suitable for a company that pays for raw materials and earns foreign currency income.
Most of the capital placed in the deposit program comes from existing lira accounts. Finance and Treasury Minister Nureddin Nebati said last week that about 15% of inflows came from foreign currency accounts.
The Turkish central bank also forces exporters to convert their income into lira. Earlier this month, the bank introduced rules requiring companies to exchange 25% of their foreign currency earnings for liras.
The pound was trading down 0.8% at 13.51 dollars to the dollar at 10:53 a.m. local time Thursday.
International financial institutions, including Bank of America, warned this week that the deposit system could be financially unsustainable if the pound continues its steep decline. Britain’s Standard Chartered bank said it expects the pound to weaken to 20 to the dollar by the end of the year.