Explainer: Turkey’s crisis – what sparked the turmoil and how does it impact elsewhere?


People walk in a market in Istanbul, Monday, Aug. 13, 2018. Turkey’s central bank announced a series of measures on Monday to free up cash for banks as the country grapples with a currency crisis. The Turkish lira has nosedived over the past week and tumbled another 7 percent on Monday as the central bank’s measures failed to restore investor confidence. (AP Photo/Mucahid Yapici)
People walk in a market in Istanbul, Monday, Aug. 13, 2018. Turkey’s central bank announced a series of measures on Monday to free up cash for banks as the country grapples with a currency crisis. The Turkish lira has nosedived over the past week and tumbled another 7 percent on Monday as the central bank’s measures failed to restore investor confidence. (AP Photo/Mucahid Yapici)

As Turkey remains in turmoil, we answer the key questions.

What has happened in Turkey?

The Turkish lira has collapsed in value over the past week, continuing a trend that has seen it tumble nearly 50pc versus the dollar in 2018 overall.

Having been worth around 3.7 lira to the dollar at the beginning of the year, it now stands at 6.5.



Andrew Brunson is currently under house arrest (AP)Andrew Brunson is currently under house arrest (AP)

Andrew Brunson is currently under house arrest (AP)

The currency crisis has been triggered by concerns over president Recep Tayyip Erdogan’s economic policies and a trade and diplomatic dispute with the United States.

The two countries are at loggerheads over Turkey’s detention of American evangelical pastor Andrew Brunson.

Donald Trump has exacerbated the feud by doubling steel and aluminium tariffs on the country.

Mr Erdogan has responded by telling Turks to boycott US electronic goods.



A board with foreign currency exchange rates outside a currency exchange shop in Istanbul on Monday (Lefteris Pitarakis/AP)A board with foreign currency exchange rates outside a currency exchange shop in Istanbul on Monday (Lefteris Pitarakis/AP)

A board with foreign currency exchange rates outside a currency exchange shop in Istanbul on Monday (Lefteris Pitarakis/AP)

The situation has compounded fears over the country’s high inflation levels, current account deficit and growing private sector debt.

While the lira stabilised at around 6.5 per dollar on Tuesday, up 6pc from the previous day, it remains close to the record low of 7.23 per dollar hit on Sunday.

Read more: Turkey lira crisis: Shock waves sent through markets as attempts made to calm contagion

What about the wider impact?



Women exchange currency at an office in IstanbulWomen exchange currency at an office in Istanbul

Women exchange currency at an office in Istanbul

Away from the lira, most of the fallout has been seen in European markets and in banks exposed to Turkey.

Fiona Cincotta, senior market analyst at City Index, explains: “Fears of contagion from Turkey’s precarious financial position have been weighing on European markets which are more exposed to Turkey than the US.

“The banking sector on the FTSE and across Europe has been hardest hit, particularly BBVA, BNP Paribas and Unicredit banks which have the greatest exposure to Turkish debt and loans.”

The fear, she added, is that Turkish corporates could default on their heavy foreign currency debt, resulting in a domino effect which could ultimately “hit the banks hard”.

 

What does it mean to the man/woman on the street?

Holidays in Turkey just became a whole lot cheaper. With 8.3 lira to the pound, a foreign trip to Istanbul and its seaside resorts will set you back a lot less than this time last month. Then, £1 got you 6.4 lira.

Travellers to the area are still advised to be alert to their surroundings and steer clear of non-essential travel to areas near the Syrian border.

Reuters

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