Tag: Currency

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Turkish Foreign money Hits a New Low, Once more

Turkish Currency Hits a New Low, Again

ISTANBUL — The Turkish lira hit new lows on Thursday after the Central Bank reduced interest rates for the fourth successive month in what has become President Recep Tayyip Erdogan’s increasingly personal battle to turn an ailing economy around.

The lira plunged to 15.60 against the dollar in the hours after the rate cut, down 5 percent in the day. The cut was widely expected since Mr. Erdogan announced his intention last month to lower rates despite soaring inflation of more than 20 percent.

Mr. Erdogan has resisted following generally accepted policy of raising interest rates to contain inflation, choosing instead to drive rates down in an effort to encourage growth with an eye on elections 18 months away. He has promised to increase production and employment in what he casts as an “economic war of independence.”

Driving the lira down in value appears to be part of a policy to make Turkey more competitive in export markets. The lira has lost nearly 50 percent of its value this year.

Yet the currency crash has hit Turkish citizens with almost daily price increases and inflation rates of 21 percent, although analysts say unofficial rates are double that.

In a sign of how urgent the economic situation has become, soon after Thursday’s rate cut, Mr. Erdogan announced in a televised news briefing at the presidential palace that he would be raising the minimum wage in the new year by 50 percent.

“With this raise, we proved our determination to prevent our employees being crushed by price increases,” he said. He promised to prevent speculation on the currency and to end the volatility. “There is no need for such speculation. Our money is here, and it is the Turkish lira. We will not allow it to crash.”

Mr. Erdogan has taken increasing personal control over the country’s economy and monetary policy, changing the head of the Central Bank several times in recent years and explaining that because he was responsible to voters for the economic performance of the country, he should be involved in the decision making.

Yet it is his repeated interference and unorthodox policies that have scared investors and rattled markets.

Nureddin Nebati, the Turkish finance minister, reiterated Mr. Erdogan’s announcements in his own comments on Twitter. “We said, ‘We will not subjugate the minimum wage earner to inflation.’ We did not, we do not,” he wrote. The government was also reducing the tax burden on employers, he wrote.

But Mr. Erdogan’s political opponents were quick to cast criticism, while analysts pointed to the contrast with Britain and Norway, which both raised interest rates on Thursday to counter rising inflation in their economies, moves that were met favorably by the markets.

“This is now a deliberate evil,” Ugur Gurses, a financial analyst and former central banker, tweeted about the latest government moves. “It’s a shame for the country.”

A former prime minister, Ahmet Davutoglu, in light of the day’s crushing fall of the lira, derided the increase in the minimum wage. The wage had decreased in value by 110 U.S. dollars, which was more than the increase was worth, he said. “The word for taking $110 out of people’s pockets by pretending to give them 1,425 TL is ‘stealing’!” he said.

Mustafa Murat Kubilay, a financial analyst, said Mr. Erdogan’s latest moves were aimed at bolstering production and exports in the first quarter of next year to put him ahead for elections.

“As imports decrease because of increasing poverty, there would be a current account surplus,” Mr. Kubilay said. “The Central Bank reserves will increase, and, in the medium term, the aim is for currency price to stabilize.”

“Sacrificing income tax and the increase in the minimum wage is an indication that we have entered the election process,” he said.

The thinking was that if the pandemic were finished, along with Turkey’s drought, by next summer, and with the tourism and the construction sectors reviving with low-interest-rate loans, then conditions would be set for snap elections, Mr. Kubilay said.

But the plan was fraught with weaknesses, he said. He warned that there could be significant money flows out of the country, difficulty procuring imports needed for the country’s exports, and even a possible social explosion as people experienced deepening poverty.

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Business

Treasury Places Taiwan on Discover for Foreign money Practices

The Treasury Department said Friday that it is informing Taiwan, Vietnam and Switzerland of their currency practices, but it reconciled a more conciliatory tone than the Trump administration by ceasing to call one of them a currency manipulator.

The announcement was made in the Treasury Department’s first foreign exchange report under Secretary Janet L. Yellen. The report, which the Treasury Department submits to Congress twice a year, aims to hold United States’ major trading partners accountable for trying to gain an unfair advantage in international trade through practices such as the devaluation of their currencies.

To be classified as a currency manipulator, a trading partner must enter into negotiations with the United States and the International Monetary Fund to address the situation. The flaw is somewhat symbolic, but it can lead to tariffs or other retaliation if the talks break down.

Both Switzerland and Vietnam were on the list of currency manipulators after the Trump administration added them last year, and their removal on Friday means no country is currently facing that designation. Still, the Treasury Department said there are indications that Switzerland, Vietnam and Taiwan are not managing their currencies properly.

“The Treasury Department is working tirelessly to address foreign trade efforts to artificially manipulate their currency values ​​that unfairly disadvantage American workers,” Yellen said in a statement.

The decision is the latest attempt by the Biden administration to ease tensions with American allies after four years of former President Donald J. Trump’s confrontational stance towards international economic diplomacy. It also distracts the United States from Trump’s fixation on bilateral trade imbalances and takes a more holistic view of trade relations.

Revealing the extraordinary economic conditions caused by the pandemic last year, financial officials said they were not attempting to send mixed messages by pointing out that tampering was taking place, rather than labeling it as such.

“This report takes on a more measured and analytical tone in evaluating the monetary practices of US trading partners in relation to the Trump administration’s approach to using the report as a policy tool,” said Eswar S. Prasad, former China head of the International Monetary Fund . He said the Biden administration report “comes up with analytically balanced assessments of foreign exchange interventions by US trading partners.”

The Trump administration labeled Vietnam and Switzerland as manipulators in its 2020 final report, but the Biden administration said there wasn’t enough evidence to support the designation. To obtain the label, the Treasury Department must conclude that a country is manipulating the exchange rate between its currency and the dollar in order to “prevent effective balance of payments adjustments or to gain an unfair competitive advantage in international trade”.

Instead, the Treasury Department said it would pursue “increased engagement” with Vietnam and Switzerland and begin such talks with Taiwan, including calling on trading partners to address the undervaluation of their currencies. There is no fixed duration for the duration of such discussions without a resolution.

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April 16, 2021, 1:30 p.m. ET

Mark Sobel, chairman of the Official Monetary and Financial Institutions Forum, said the Biden administration is wise to take a more nuanced approach to assessing countries’ management of foreign exchange.

He noted that Switzerland was facing unusual monetary and security challenges and that Vietnam’s foreign exchange reserves were low when it received the manipulator label last year. A government can suppress the value of its currency by selling it in foreign exchange markets and by stocking dollars.

Furthermore, Taiwan, Thailand and South Korea have traditionally been worse offenders than Switzerland and Vietnam, according to Sobel, despite the fact that the United States has avoided asking them to.

“I think the new treasury team is more willing to recognize that the relative political divergence between the US and others is a major factor in this,” said Sobel. “I also think the Trump administration’s approach as a general proposal was much more bellicose.”

Taiwan was the United States’ 10th largest trading partner in 2019, according to the United States Trade Representative’s Office. Vietnam was the 13th largest and Switzerland the 16th.

While the United States has deepened ties with Taiwan in its efforts to confront China, the Biden administration also calls for greater investment in the American semiconductor industry to reduce the nation’s reliance on imports from Taiwan and other countries.

The financial report stated that Taiwan’s central bank “continues to actively intervene in the foreign exchange market” and that “less formal exchange-rate management practices” have prevented the Taiwanese dollar from fully reflecting macroeconomic fundamentals.

Currency analysts have expected the Biden administration to put more pressure on Taiwan to change its foreign exchange practices following the appointment of Brad Setser to a senior position in the office of the United States Trade Representative. As a member of the Council on Foreign Relations in 2019, Mr. Setser wrote in a report that Taiwan had hidden $ 130 billion in reserves to cover up its currency interventions and that the arguments for being named a manipulator were stronger than for the naming of China.

“Taiwan has really intervened on a massive scale to maintain an undervalued currency for competitive advantage,” Setser wrote on Twitter at the time.

The Treasury Department did not label China as a currency manipulator, but instead called on it to improve transparency about its foreign exchange practices.

The Treasury Department has put China, Japan, South Korea, Germany, Italy, India, Malaysia, Singapore and Thailand on its currency watch list, adding Ireland and Mexico.

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World News

U.S. working with IMF to supply $650 billion in forex help to nations hit by pandemic

U.S. working with IMF to provide $650 billion in currency aid to countries hit by pandemic

The U.S. Treasury Department in Washington, DC on Friday, March 19, 2021.

Samuel Corum | Bloomberg | Getty Images

The Treasury Department is working with the International Monetary Fund to provide monetary aid of up to $ 650 billion to countries hardest hit by the Covid-19 pandemic.

An announcement by the Treasury Department on Friday showed it was helping the IMF allocate $ 650 billion in Special Drawing Rights, which “would help build reserve buffers, smooth adjustments and mitigate the risks of economic stagnation in global growth.” “.

SDRs are currency reserves that countries can use to supplement their foreign exchange assets such as gold and US dollars.

The Treasury Department’s announcement indicated that the allocation of SDRs is within the level the department is allowed to allocate without the approval of Congress. Treasury Secretary Janet Yellen and Senator John Kennedy, R-La., Had a heated discussion on the SDR issue during a public hearing recently.

In essence, the deal would allow countries to exchange their SDRs for US dollars. Global demand for American currency has been a recurring problem throughout the pandemic and has resulted in the Federal Reserve running a robust dollar swap program around the world as well.

The Treasury Department would exchange SDRs for dollars it holds in the Exchange Stabilization Fund. This, in turn, would require the government to borrow more money and create some coastline, namely the difference between the interest on the SDR and the interest on government bonds.

“These potential implied costs are much less than the benefits of a strong global recovery,” the department said in the press release.

“Addressing long-term global reserves would help support the global recovery from the COVID-19 crisis. A strong global recovery would also increase demand for US exports of goods and services – creating US jobs and US -Companies support “statement added.

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Business

China Costs Forward With a Nationwide Digital Forex

China Charges Ahead With a National Digital Currency

But no major power is as far as China. His early steps could signal where the rest of the world is going with digital currencies.

“This is more than just money,” said Yaya Fanusie, a staff member at the Center for Economic and Financial Power, a think tank and author of a recent paper on the Chinese currency. “It’s about developing new tools to collect data and use that data to make the Chinese economy smarter and based on real-time information.”

While the Chinese government has not said if and when it will officially roll out the eCNY nationwide, several officials have mentioned that it is ready for tourists arriving for the Beijing 2022 Olympics. Recent articles and speeches from officials at People’s Bank of China, the country’s central bank, underscored the project’s ambitions and desire to be the first.

“The right to issue and control digital currencies is becoming a ‘new battlefield’ of competition between sovereign states,” said a September article in China Finance, the central bank’s magazine. “China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate to take the first path.”

The People’s Bank of China did not respond to a request for comment.

The development of a national digital currency began in 2014 when the People’s Bank of China set up an in-house group to work on one soon after Bitcoin caught the country’s attention. In 2016, the central bank created a division called the Digital Currency Institute. Last year, according to research by Sino Global Capital, a financial investment firm, trials of eCNY were started in the cities of Shenzhen, Suzhou, Xiongan and Chengdu.

People invited to trial through a lottery on WeChat or other apps could click a link and receive a balance of 200 electronic yuan, which was sometimes displayed in their banking app over an image of an old-fashioned Chinese banknote with Mao Zedong’s face . To spend the money, users can use an eCNY app to scan a retailer’s QR code or create a QR code that the retailer can scan.

ECNY’s design borrows few minor technical elements from Bitcoin and does not use what is known as blockchain technology, a ledger-like system that most cryptocurrencies rely on, officials at People’s Bank of China have said.