Global economics is on a concerning slowdown. The major reasons that are denoted for this slowdown involve the COVID-19 pandemic and the Russia-Ukraine war. Some economies such as Germany declared that the country has entered a recession while other countries such as the United Kingdom are making rigorous attempts to keep the country out of recession.
The US is also dwindling, it is experiencing the worst economic slowdown since the 1930s and recently witnessed the fall of two major banks including Silicon Valley Bank. Some nations were already experiencing high inflation even before these two global events erupted. Some of them are Iran, Turkey, Mexico etc.
Turkey’s economy is overheating. Runaway inflation and a collapsing Lira have pushed millions of Turks to the brink of financial ruin and slammed factories, farmers and retailers across the country. The crisis is characterized by the Turkish lira plunging in value, high inflation, rising borrowing costs, and correspondingly rising loan defaults.
The crisis was caused by the Turkish economy’s excessive current account deficit and large amounts of private foreign-currency-denominated debt, in combination with President Recep Tayyip Erdoğan’s increasing authoritarianism and his unorthodox ideas about interest rate policy.
Some analysts also stress the leveraging effects of the geopolitical frictions with the United States. The economic sanctions, therefore doubled the tariffs on Turkey, as imported steel rose by 50% and aluminium by 20%. As a result, Turkish steel was priced out of the US market, which previously amounted to 13% of Turkey’s total steel exports.
It is reported that more than two-thirds of people in Turkey are struggling to pay for food and cover their rent, according to a survey by Yöneylem Social Research Centre, fuelling a surge in mental illness and debt.
Amid this steep plunge and Lira crash Turkey citizens are sliding towards cryptocurrencies more specifically as reported by Bloomberg towards Stablecoin USDT. Analysts expect Turkey’s economic crisis to worsen after President Tayyip Erdoğan came top in the first round of the country’s presidential election and his party gained a parliamentary majority in a legislative vote.
It is important to note that Recep Tayyip Erdogan is a fierce critic of crypto while the major opposition leader Kemal Kilicdargolu held a pro-crypto and liberal economic stance. As reported by Bloomberg there was a significant shift witnessed during the first week of May ahead of the presidential elections. The interest remained high even after their completion, which saw Erdogan win by getting 52% of the votes.
It is evident that USDT had turned into a safe haven for some locals to preserve their wealth amid the soaring and sprawling inflationary environment. The asset maintains a consistent peg with the US dollar, and it provides a relatively safe and simple way in which Turks can join the crypto sector. On the other hand, domestic regulators have restricted the purchase of dollars and even gold with the lira, giving crypto a more notable status.
Ebru Güven, a university lecturer and former banker highlighted that Investing in stablecoins allows people to keep the value of their wealth, it is one of the ways to hold on to some value when inflation is this high. This is the only motivation for people to buy stablecoins right now.
This significant shift towards cryptocurrencies represents citizens’ trust during times of inflation. Thus, it is important for the government to establish negotiations among stakeholders and draft regulations in Turkey.