Turkey has blocked Citibank, UBS, and BNP Paribas from conducting foreign exchange trades in an attempt to prevent further devaluation of the lira, which hit a record low in early March 2020. The Turkish currency dropped below levels seen during a 2018 crisis that caused the country’s first recession in a decade. Turkey’s state-run media, Anadolu Agency, reported that the banking watchdog responsible for banning the three banks from lira transactions would be taking legal action against the London-based institutions. Additionally, Turkish President Recep Erdogan announced that all future contracts for sales, rent, and leasing must be made in lira. The record low leads investors to worry about a lack of reserves needed to protect Turkey’s economy from the fallout of the COVID-19 pandemic.
Heading for its second recession in less than two years, Turkey has asked the US Federal Reserve and other central banks for access to funds as the value of its own net foreign currency reserves has fallen by roughly one-third thus far in 2020, reaching as low as 178 billion lira ($25 billion) in late April. It is likely that the drop in Turkey’s reserves resulted from its funding of state bank interventions aimed at stabilizing the lira. Making matters worse, Turkey faces a relatively high $170 billion (1.2 trillion lira) in external debt costs as of May 2020.
