The Collapse of the Turkish Lira: Economic Policies, Inflation, and the Rise of Bitcoin | by Gökhan SAKALLI | The Capital | Mar, 2025
The Turkish lira has been in a state of freefall for more than a decade, losing over 90% of its value against the U.S. dollar. As of March 2025, the exchange rate stands at 1 TRY = 0.026 USD, a stark reminder of the currency’s dramatic collapse. The underlying causes are deeply rooted in poor economic policies, political interference, and mismanagement, leading to soaring inflation, eroded public trust, and a search for alternative financial solutions — one of which is Bitcoin.
Turkey’s economic troubles stem from a combination of unconventional monetary policies, high inflation, and loss of investor confidence. The key factors include:
- Erdogan’s Unorthodox Economic Policies
President Recep Tayyip Erdoğan has long maintained a controversial stance on interest rates. He believes that high interest rates cause inflation, contradicting standard economic theory, which suggests that increasing interest rates helps control inflation. Under his leadership, Turkey’s central bank has repeatedly slashed interest rates, leading to excessive money supply, a weakening currency, and spiraling inflation.
2. High Inflation and Declining Purchasing Power
As a direct consequence of these policies, Turkey’s inflation rate has skyrocketed, at times surpassing 60–70% annually. This has eroded the purchasing power of Turkish citizens, making even basic goods like food and housing increasingly unaffordable. The cost of living has soared, while wages have struggled to keep pace.
3. Political Interference in the Central Bank
In a healthy economy, central banks operate independently to regulate monetary policy. However, in Turkey, Erdoğan has frequently dismissed central bank governors who opposed his economic views. This has led to policy instability and significantly damaged investor confidence.
4. Foreign Exchange Reserves and External Debt
Turkey’s reliance on foreign debt and dwindling foreign currency reserves have exacerbated the crisis. The government has spent billions propping up the lira, yet the interventions have failed to provide lasting stability.
With the lira losing its value and inflation spiraling out of control, many Turks have turned to cryptocurrencies like Bitcoin as a hedge against economic uncertainty.
- Bitcoin as a Store of Value
Bitcoin, often referred to as “digital gold,” has become a preferred store of value for Turks seeking to protect their wealth. Unlike the lira, which continues to depreciate, Bitcoin is scarce (limited to 21 million coins), making it a more attractive option for preserving financial stability.
2. Growing Adoption of Crypto Exchanges
Turkey has one of the highest crypto adoption rates in the world. Popular exchanges like Binance, BTC Turk, and Paribu have seen record-breaking trading volumes as more people trade lira for Bitcoin and stablecoins like USDT (Tether) to escape inflation.
3. Government Crackdown and Regulation
While crypto adoption is rising, the Turkish government has attempted to regulate and restrict cryptocurrency transactions. In 2021, Turkey banned the use of cryptocurrencies for payments, citing concerns over financial stability and illicit transactions. However, despite these restrictions, the demand for crypto continues to grow.
The future of the Turkish lira remains uncertain. Without significant changes in economic policy and governance, the currency is likely to continue its decline. The key factors to watch include:
• Monetary Policy Decisions: Will the government reverse its stance on interest rates and adopt a more conventional economic approach?
• Inflation Control Measures: Can inflation be tamed before it further devastates the economy?
• Crypto Regulations: Will the government tighten restrictions on crypto, or will Turks continue using it as an economic lifeline?
For now, as the lira crumbles, Bitcoin and other cryptocurrencies offer an alternative path for those seeking to protect their wealth from inflation and financial instability.
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The Turkish lira’s collapse is a stark reminder of how poor economic policies and political interference can devastate a nation’s currency. As inflation continues to erode the savings of millions, Bitcoin has emerged as a lifeline for many. Whether Turkey can stabilize its economy or if more citizens will shift towards decentralized financial systems remains to be seen. One thing is certain: the future of money in Turkey is rapidly changing.
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