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Turkish President Recep Tayyip Erdogan said authorities had used $ 165 billion of the central bank’s foreign exchange reserves over the course of 2019 and 2020 and could use them “again when needed.”
“The central bank currently has about $ 90 billion in reserves,” he told Ankara lawmakers on Wednesday. “These reserves can be used again when needed or can increase over $ 100 billion in the future,” Erdogan said, referring to the monetary authority’s total gross reserves.
Recep Tayyip Erdogan on April 21.
Photographer: Adem Altan / AFP / Getty Images
The lira extended its decline against the dollar during his speech and traded 0.8% lower at 8.1771 at 16:10 in Istanbul.
Turkey’s main opposition, the Republican People’s Party, is Demand officials explain a decline in foreign exchange reserves during the time when Berd Albayrak, Erdogan’s son-in-law, was minister of treasury and finance. He held the position from July 2018 until November last year.
On Wednesday, Erdogan accused the party of spreading a “huge lie”, suggesting that $ 128 billion was “gone or stolen”.
Global banks, including Goldman Sachs, predict that more than $ 100 billion has been spent on central bank reserves to prevent a disorderly depreciation in pounds last year alone, when the currency came under pressure after a series of large rate cuts to support the economy affected by the pandemic.
In 2019, Turkey initially increased foreign currency sales as the pound weakened in the run-up to the municipal elections, continuing with a resumption of the Istanbul ballot that Erdogan’s AK party lost. Geopolitical tensions with the United States later that year affected the currency.
Erdogan said Wednesday that the central bank’s reserves were used to raise $ 165 billion to finance current account deficits and capital outflows and to meet demand for foreign currency and gold from local investors. The president said much of the money remained in the country, as the central bank conducted foreign exchange transactions through market-producing banks.
Turkey’s total gross reserves, including gold and money held by the central bank on behalf of trade creditors, have fallen by more than 15% since early 2020, to $ 89.3 billion in April. Net international reserves fell by more than 75% to $ 9.9 billion, while money borrowed from banks in short-term swaps reached tens of billions of dollars.
When these swaps are removed from net reserves, they fall below zero, according to Bloomberg calculations.
In a written interview after his appointment last month, the new governor Sahap Kavcioglu said that the central bank will maintain its goal of increasing foreign exchange reserves and “can use instruments to increase reserves under appropriate conditions.”
(Updates with more details.)