The foreign reserves issue

LAST NOVEMBER, when the Central Bank Governor was replaced and the Treasury and Finance minister resigned, the backstage in Ankara was shaken by the reserve issue and allegations that President Erdogan had only just been made aware of negative reserves. Three months have passed and until last week, there had been no objections to the claim that the Central Bank reserves had disintegrated by USD 130bn. When the issue of USD 130bn was brought up, President Erdogan commented that there was no such thing as negative reserves and that the foreign exchange sale was made in accordance with legislation.

I asked the question of whether the foreign exchange sale was in line with the legislation to one of the most competent people in the field, Ibrahim Turhan, the Central Bank’s former Deputy Governor.

The fact is that the Central Bank did not only make “underground, unorthodox” foreign exchange sales just in the previous year; the sales had already begun in 2019. In fact, the sales started in August 2018 during the Pastor Brunson crisis, according to Turhan. He stated that what was sold in that period was not the Central Bank’s money. Nevertheless, the sales had started putting pressure on banks and in 2019 it became inevitable that these banks needed to be supported in some way. Turhan stated there was an increase in the exchange rate just before the local elections in March 2019, and looking at TRY liquidity, the amount was lower than it should have been, indicating that the Central Bank had sold “something.” The “something” was of course foreign currency.

During our meeting, Turhan brought up the allegation that the people who sold USD 130bn had misinformed President Erdogan. I asked Turhan where his view was coming from. He answered: “The Central Bank’s text about its monetary and exchange rate policy says that ‘the floating exchange rate regime will continue to be implemented. The Central Bank does not hold a nominal or real target for the exchange rate.’ You acknowledge these in the monetary and exchange rate policy texts and then go ahead and do the opposite. Isn’t this the most obvious form of misinformation?”

According to Turhan, it can only be revealed through a fair and impartial investigation whether there is misconduct or unlawfulness concerning foreign exchange sales. “The transaction method was not transparent. It is not clear who the buyers were or when, how and at which rate the sale was made,” he said.


President Erdogan declared recently that reserves stood at USD 95bn. When I asked him about it, Ibrahim Turhan suggested we calculate it ourselves. “As of February 5, there were USD 96.4 bn in gross reserves. But we also have liabilities. After we account for those, our net foreign exchange reserves come to USD 14.1bn. Furthermore, not all of this belongs to the Central Bank. Swaps made in the market, namely with banks, amount to USD 41.7bn, and when you add in the USD15bn received from Qatar, the total comes to USD 56.7bn. So now we’re left with minus USD 42.6bn. Therefore, Turkey’s foreign exchange reserves are USD 42.3bn and not USD 95bn as stated.”

Leave a Reply

Your email address will not be published.