One of the more bizarre and frankly sad stories to come out of this year has to be Turkey.
Like much of the world, the developing nation has been struggling with inflation — trying to stave off extreme price rises and maintain a healthy economy.
Unfortunately, though, unlike the rest of the world, Turkey’s troubles began well before the pandemic…
The national currency, the lira, has basically been in freefall since late 2018. It has collapsed under the weight of growing concerns about debt as well as an inability for the central government to intervene.
As a result, Turks are now battling against an inflation rate of close to 20%, all while the currency crisis around them only deepens.
Earlier this week, the lira dropped more than 15% in a day, relative to the US dollar. It reached a record low conversion rate of 13.44, well beyond what many thought was even fathomable.
So who is to blame for all of this?
Their own elected president…
Too much power for one man
It seems that President Erdoğan, who has held the position for more than seven years now, has grown bolder in his own volitions. He’s decided that he, and he alone, will determine the fate of his country’s economy.
And what is his grand plan?
To embrace inflation further, not abate it…
Yes, in an insane turn of events, Erdoğan has refused to raise interest rates, suggesting that doing so would only worsen the inflation that is ravaging his people.
Or as one market strategist suggested to CNBC:
‘We are seeing a perverse economic experiment of what happens when a central bank has effectively no monetary policy.’
I would argue that it is even worse than that. This isn’t just a lack of monetary policy; it is a commitment to wrong policy.
After all, you don’t need to be an economist to recognise that fact. It is simply a demonstration of just how out of touch some politicians can become — particularly when the much larger debt crisis has been looming over the Turkish economy for quite some time now.
All that matters now is when and how it will all be resolved.
Something that every central banker around the world should pay very close attention to.
Because while most Western economies pride themselves on free-market principles, the reality is we’re closer to Turkey than many would care to admit. Seeing both the Fed and the RBA’s refusal to raise rates until they meet some arbitrary goal is proof of that.
And as followers of history will know well, it is a dangerous game to let inflation run wild.
Fail to react quickly, and it will quickly get out of control. Just like it has in Turkey.
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A need for a decentralised future
Suffice to say, all of this monetary madness just continues to justify our need for a decentralised finance, or DeFi as it is more commonly known. A concept that relies on blockchain technology to ensure market mechanisms are the only force influencing your purchasing power.
After all, cryptocurrencies like Bitcoin [BTC] are certainly volatile, but at least it won’t implode due to the rash decision of one crazed despot. A fact that has already led to an increase in trading activity of crypto from Turkish citizens.
This comes despite the fact that Erdoğan publicly condemned them just a few months ago:
‘On the contrary, we have a separate war, a separate fight against them. We would never lend support to [cryptocurrencies]. Because we will move forward with our own currency that has its own identity.’
Ironically enough, that ‘identity’ is now in shambles, showcasing once more why now, more than ever, the world needs decentralised financial solutions.
Because whether this destruction of the lira was intentional or just plain stupidity, it is clear that everyday people are the ones who suffer the consequences.
And while I’ve no doubt that the natural market forces of bitcoin would bring about its own challenges, at least you know it isn’t being manipulated under the guise of ‘monetary policy’.
That’s why an investment in crypto isn’t just about speculative gains.
It is about investing in a future for money that is free from centralised control.
Something that will, in my view, likely ensure that bitcoin will outlast the lira quite easily.
Who knows, maybe the dollar will be next…
Editor, Money Morning
PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.