The Turkish lira has had a long and tumultuous history acting as the official currency of Turkey. Dating back to the inception of its first version, the lira has undergone several major transformations. It's been plagued by stability issues, such as chronic inflation. Over the course of the 20th and early 21st centuries, periodic devaluations have cultivated an impression of instability and volatility. The lira was deemed one of the world's least valuable currencies by the Guinness Book of World Records in 1995 to 1996, and again from 1999 to 2004.
The Turkish lira exists largely as a regional currency. It is mainly used within the borders of Turkey itself as well as in certain areas of Northern Cyprus. Its currency code is TRY, and the currency symbol can be expressed alphabetically with the uppercase letters TL. Symbolically, the lira resembles an anchor with upward-pitched horizontal parallel lines, or ₺. The anchor is said to represent stability, while the upward sloped parallel lines are a reference to its upward trajectory.
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The "lira" was first adopted as the official currency of what is present-day Turkey by the Ottoman Empire in the mid-19th century. "Ottoman lira" were gold coins that were being used as currency in the region; other coins of lesser value in circulation at that time were called "kurus" and "para." Paper currency began being printed in 1870, and the first versions of Turkish lira banknotes commenced circulation.
The lira has had a volatile history with several major devaluations and reconstructions. The first major change to its structure came in 1923 with the replacement of the Ottoman lira by what was called the "First Turkish Lira." The new lira replaced various smaller denominations of coinage with a standardised decimal system of currency. One new lira was to be made up of 100 "kurus." Turkey's implementation of "The First Turkish Lira" marked the evolution of the Turkish currency from being largely specie based into a modern form of currency. Longevity was achieved by the "First Turkish Lira," as it remained the country's official currency until 2005.
Inflation was a constant challenge facing the lira throughout the 20th century. In an attempt to provide stability, Turkey periodically pegged the lira's value to several globally prominent currencies.
During the early years of the first Turkish lira, its value was pegged to the British pound and French franc. In 1946, the Turkish lira pegged its currency to the United States dollar for the first time. The exchange rate of 2.8 lira to one USD was maintained until 1960, when the lira was devalued against the USD for the first time. From the period of 1970 to 2001 the lira was devalued numerous times; the final exchange rate of the first Turkish lira was 1,650,000 lira to one USD. The meager valuation of the first Turkish lira ultimately led to the creation of the "New Turkish Lira," also known as the "Second Turkish Lira."
The Second Turkish Lira came into existence in 2005 and is the present form of currency used in Turkey. The idea for the currency was championed by the Grand National Assembly of Turkey, and in 2003, the governing body passed a law that allowed for redenomination of the lira. The law called for the removal of six zeros from the Turkish lira; the exchange rate of 1,000,000 first Turkish lira to one second Turkish lira was adopted. In Turkey, the debate of whether or not to join the European Union, and in-turn adopt the euro as the national currency, has been an ongoing political issue since the European Union's inception.
In July 1944, the United Nations Monetary and Financial Conference was held in Bretton Woods, New Hampshire. The conference became commonly known as Bretton Woods. Delegates from all 44 Allied nations were in attendance. The objective of Bretton Woods was to provide stability to the world's monetary system in the turbulent post World War II era. Several different plans were crafted by the world's leading financial authorities at Bretton Woods, and eventually a final course of action came into form.
The Bretton Woods Monetary System was the final product of the meeting, and its implementation crafted global monetary policy until the 1970s. Essentially, Bretton Woods established the United States dollar as the world's reserve currency. Through the creation of the International Monetary Fund and the World Bank, individual countries were able to fix the exchange rates of their currencies to the USD.
Turkey's global standing during the World War II era was complex in nature, and it remained fluid until the war was nearly complete. From the outset of WWII, Turkey took a neutral stance between the Allied and Axis powers. However, by 1945 Turkey had issued a declaration of war against Germany and became cooperative with the Allied powers. In 1946, Turkey accepted the terms of the new Bretton Woods system, and pegged the lira to the USD.
The Central Bank of the Republic of Turkey, also known as the CBRT, is the governing body of monetary policy within Turkey. The financial institution is commissioned with the task of controlling inflation, and ensuring price stability concerning the goods and services produced within Turkey's borders. Since its inception in 1930, the CBRT has sought to achieve its primary goal of price stability and its supporting objective of managing global financial risks as they pertain to Turkey's economic health.
Managing inflationary concerns facing the lira has historically proven to be a monumental task. In order to craft monetary policy and to stay current regarding the inflationary concerns facing the lira, the CBRT regularly issues reports and forecasts regarding inflation. Quarterly inflation reports contain current targets for, and forecasts of, future inflation levels. The Monetary Policy Committee of the CBRT meets monthly on predetermined dates to make monetary policy decisions and announces those decisions promptly.
Economy Of Turkey
Turkey's geographic location is advantageous in regards to foreign trade and has been for centuries. Dating back to the earliest days of the Silk Road trade route, Turkey has been instrumental in facilitating trade between the countries of the Far East and the countries of Western Europe. Turkey has the 13th-largest economy in terms of global production and is also considered to be the largest emerging market in Europe.
Key industrial sectors of the Turkish economy are the production of textiles, automobiles, electronics and cement. Turkey is said to have a service-based economy, as nearly 50% of its workforce originates within service industries. The services sector also produces nearly 70% of total GDP, followed by industrial output and agriculture. Traditional agriculture represents a sizable portion of the workforce and constitutes nearly 25% of the working populace. International trade is also a big part of economic activity in Turkey, as it's the 31st largest exporter in the world. The countries of the European Union are Turkey's largest trading partners, followed by Russia and the United States.
Borsa Istanbul is the sole futures and equity exchange operating in Turkey. Borsa Istanbul originated in 2013 and effectively consolidated all exchanges that operated within the nation's capital markets. The trading of equities, debt instruments, derivatives, and precious metals is facilitated via the Borsa Istanbul exchange. Departments within the exchange play a large role in regulating Turkey's markets. Unusual trading patterns within the equities and futures markets are monitored and documented by Borsa Istanbul in an attempt to eliminate securities fraud.
The official regulatory body concerning the markets in Turkey is the Capital Markets Board of Turkey, or the CMB. The CMB is empowered by the Turkish government's enactment of the Capital Markets Law of 1981. Its self-proclaimed goal is to ensure fairness, efficiency and transparency within Turkey's capital markets.
Major Currency Pairs
On the forex market, the Turkish lira is one of the more sparsely traded currencies. The most frequently traded currency pairing for the Turkish lira is with the euro (EUR/TRY). Other commonly traded pairings are with the United States dollar (USD/TRY), the Swiss franc (TRY/CHF) and the Australian dollar (AUD/TRY).
Banknotes And Coinage
The lira is denominated in 1, 5, 10, 20, 50, 100 and 200 lira banknotes, which are printed in many different colours. Red, green, beige, violet and purple are used in various designs to mark each unique denomination. One common characteristic of the banknotes is the portraiture of Mustafa Kemal Ataturk, the first president of Turkey, on the face of every banknote. The opposite side contains a portrait of a historically significant Turkish personality; a different one for each denomination.
Extensive security features are used in the production of each Turkish lira banknote in an attempt to prevent counterfeiting. Security devices such as holographic stripes, watermarks, security threads and latency numbers are used to ensure authenticity.
Turkish coins are denominated in terms of the minor monetary unit, known as the "kurus." Similar to the relationship of the United States dollar to the penny, one Turkish lira is equal to 100 kurus. Kurus are put into circulation by the Turkish State Mint, and they come in 1, 5, 10, 25 and 50 kurush denominations.
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Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…