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A Forex Guide to the Turkish Lira

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The Turkish Lira has been the official currency of Turkey for many years, although it has had a tumultuous history. Over the years, it has been through numerous major transformations, having been plagued by issues of instability and chronic inflation. Periodic devaluations over the course of the 20th century and into the early part of the 21st century have led to volatility in the currency. The Turkish Lira is largely a regional currency, primarily used within Turkish borders and in some parts of Northern Cyprus, and its Forex code is TRY. The Central Bank of the Republic of Turkey (CBRT), is the country’s governing body for formulating monetary policies. This institution is also commissioned with controlling inflation while ensuring the stability of prices of services and goods. Since it was established in 1930, the CBRT has worked towards achieving its goal of obtaining price stability and managing world financial risks appertaining to the economic health of Turkey. The Lira has long faced inflationary problems, and in order to stay up to date with inflationary concerns and to craft monetary policies, the CBRT issues regular inflation forecasts and reports, meeting on a monthly basis to make decisions over monetary policy. The Turkish Lira is not one of the most popular currencies for trading on the Forex market, and when it is traded,  it is most frequently paired with the Euro (EUR/TRY). It is also sometimes paired with the US Dollar, the Swiss Franc and the Australian Dollar.

History of the Turkish Lira

The roots of the Turkish Lira stem from the ancient Roman weight measurement, the Libra, and today’s currency is the modern descendant of this ancient currency system. In 1844 the Ottoman Lira was established as the primary unit of currency, with the Ottoman empire’s former currency, the Kurus, remaining as a subdivision. This currency stayed in circulation until 1927. At various points the Turkish Lira was pegged to the Pound Sterling, the French Franc and the US Dollar. However, its value began to drop considerably over the years until in 1995, when the Guinness Book of Records recorded that the currency was the least valuable in the world! A law was passed in 2003 that allowed for a redenomination of the currency and a new Lira to be created. This new form of the Lira was introduced in January 2005, and this led to more stabilisation in the rate of exchange.

The Turkish Economy

turkish liraThe Turkish economy has been defined as an emerging market economy, Turkey being a newly industrialised nation. It is a leading producer of agricultural products as well as textiles, ships, motor vehicles, transportation equipment, home appliances, consumer electronics and construction materials. The country’s agricultural industry is a major contributor to the GDP, with products such as pomegranates, hazelnuts, figs and apricots being important to the economy, although this industry has been in decline since the 1980s. Fishing is also significant to the economy, as well as livestock products. Other important sectors include the industrial sector, especially consumer electronics, textiles, motor vehicles, shipbuilding, armaments, steel and iron. Turkey also has a very competitive construction industry, and its service sector is emerging in importance, especially in terms of transportation, telecommunications and finance. Turkey’s tourist industry is a rapidly developing sector, with many resorts proving popular with overseas visitors, although the fear of terrorism has caused some decline in the last few years. Turkey’s main trading partners include Iran, Russia and Germany. There is also a customs union that has been arranged with the EU to increase industrial production for exports.

Factors at Play When Determining the Value of the Turkish Lira

There are several factors to bear in mind when considering the value of the Turkish Lira and the overall health of the Turkish economy. Some of these aspects include a slowdown in European growth and a deterioration in the local geopolitical environment, both of which impact negatively upon the nation’s export industry. The current situation in Syria is impacting upon the Turkish economy, as a high influx of refugees into the country has had an affect on growth and investment within the country as a whole, and especially in urban centres. Other times of unrest such as the recent failed coup and various terrorist attacks have led to a lack of consumer confidence in the Turkish economy and the Turkish Lira, and this has also led to a decline in tourism, which is a major problem for a country that bases a considerable amount of its economy on its hospitality and overseas visitors industry. This volatility also results in a lack of overseas investment, which also slows down Turkey’s economic growth. Another factor that impacts on the value of the Lira is any variation in global demand for Turkey’s exports, such as agricultural products, clothing and consumer electronics, and any issues that affect the economic situation of any of Turkey’s primary trading partners.

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