Financial Oppression: Lessons From Turkey And Why Crypto Is A Hedge

Picture this; even after Turkish citizens are suffering through inflation rates of 21%, Bulgarians are flooding into Turkey through the western border to buy the very clothes, fuel, food, and other commodities that Turks are finding unbearably expensive.

This is what happens when cronyism and state capture replace sound monetary and fiscal policies. This describes basically every democracy in modern times but more so, emerging nations. See, absolute power corrupts absolutely. It should therefore not come to anyone’s surprise what’s happening in Turkey.

Under the guise of Islam and its disdain for high interest rates, Erdogan’s plutocracy has recently run a low-interest regime, effectively weakening the Turkish Lira against foreign currencies. Naturally, people would seek to dump the Turkish Lira in favor of the Euro or Dollar, seeing as it was losing value literally every day.

Instead, Erdogan promises to make up the deficit in case the Lira falls in the forex markets. First, that is typical dictator speak and second, everybody saw from Venezuela, Argentina, and Zimbabwe that printing more currency to attempt to bridge a deficit never works. I’m not sure exactly how Erdogan plans to bridge the deficit, but I know that printing money into the economy never ends well.

An option would have been for him to raise interest rates but that would drive investors away, and catch him dead contravening age-old low-interest Islamic traditions. The only option open to Erdogan for bridging this local currency deficit would be to print Lira into circulation, which would in turn cause inflation. This explains why Bulgarians are flooding in to buy, at a discount, clothes, food, and electronics that Turks are 21% more expensive than only a few months ago.

Why Turkey?

Aside from being governed by a plutocratic regime, two things are currently working against Turkey; energy and tourism. Turkey is a net energy importer, which means that the current European energy price spike is hitting them hard. Besides, the tourism dollars and euros, which form a large portion of the Turkish economy, are no longer flowing in because of the global COVID pandemic.

Both the factors have contributed the most to leaving the Turkish economy in a precarious position, hence why Erdogan is hell-bent on keeping interest rates low, to encourage investors into the economy. In the most Ponzi manner yet, he has also implored Turks not to dump the weakening Turkish Lira, promising to make up the difference in case of any further currency devaluation.

Lessons for Emerging Economies (And the World)

Printing money does not create wealth; wealth is created by innovation, creativity, and economic activity. Money needs to be deployed into constructive usage if any wealth is to be created. In emerging economies, the ruling class is much more comfortable funneling funds into offshore accounts, than letting the money work within the economy.

This is part of the reason why crypto adoption amongst emerging economies would be revolutionary. With decentralized currencies, no single person determines how the money is allocated. Thus far, central banks have abused the trust offered to them by the people, plunging the world into unending debt and questionable monetary policies. Decentralized currencies give back power to the people in the most transparent ways.

Decentralized currencies are also a good way to protect against any inflation resulting from poor political decisions, such as those in Turkey and many emerging world nations. In the grand scheme of things, BTC is likely to gain value over the next few years, compared to the Turkish Lira, which is likely to continue losing value.

Any Turks with their wealth currently stored in BTC, ETH, or any of the main cryptocurrencies will likely sleep better at night, knowing that their money is safe from undue political interest. It is not unfathomable that what happened to Cypress (which also uses the Lira) could happen to Turkey and any country really, where the government arbitrarily decided to chop off everybody’s bank balance. Having your money stored in a safe Crypto wallet is a nice way to keep it away from the ravages of fiat.

The Dictator’s Playbook

Governments exist to enrich the governors, period. Whether these are presidents, prime ministers, or ministers. And less established democracies, such as those in the emerging markets, are more susceptible to cronyism and political wheeler-dealers. Today, people fight to get in power with the aim of maximizing their wealth at the expense of the masses.

Dictators like Erdogan capture all the wealth generated by their economies and distribute them amongst their cronies, then devalue the currency, to keep the citizenry dependent on their hand-outs. This overused dictator’s playbook is currently what’s in play in Turkey, and many emerging nations. The ultimate goal is usually to create a generation of dependency on the central government.

This amounts to financial oppression on the citizenry, in the form of financial depression. The citizenry is not protected whatsoever, from inflation, which means that in a couple of months they would not comfortably afford what they can now.  The Turkish government has however taken it a notch higher; Erdogan promises to protect the citizenry against currency devaluation, while completely disregarding what the 21% inflation is doing to Turks.

This is made worse by the fact that Erdogan applies principles that run counter to mainstream economic theory, as he argues that high interest rates fuel inflation. The Lira as a result has devalued an average of 30% against the dollar, losing nearly 60% of its value at one point. At a time when other nations around the world are struggling to keep interest rates high, it calls to question how one person, Erdogan, can plunge 80 million people into financial uncertainty, through unsound fiscal and economic policy.

Citizens of emerging nations need to take note, and take back control, as this might just end up happening in your country. The best bet seems to get into crypto now if one is to take control of their financial future.