The economic crisis behind the continuous depreciation of the Turkish Lira

The Turkish Lira (TRY) has experienced a continuous decline over the past decade, dropping from a range of 35-36 at the beginning of 2025 to around 42 in mid-November, with a total decline of over 20% for the year. This is not merely a currency exchange rate issue but reflects a deep economic crisis in Turkey.

The Triple Blow of Turkey’s Economic Crisis

The long-term depreciation of the lira stems from three interconnected problems:

Policy credibility collapse is the first dilemma. In recent years, the Turkish central bank has implemented highly controversial unconventional policies—cutting interest rates during periods of soaring inflation—undermining market confidence in its independence. Capital outflows have intensified, with businesses and residents shifting towards holding hard currencies like USD and EUR, creating a vicious cycle.

Structural dependence on imports is the second heavy burden. Turkey relies heavily on imports for energy, raw materials, and other key commodities, all settled in USD. Each depreciation of the lira increases import costs, pushing up prices and further damaging investor confidence. This has led to high inflation, with a shocking exchange rate of 1 USD = 1,650,000 TRY in 2001. Even after currency reform in 2005 (1 new TRY = 100,000 old TRY), this history still casts a shadow over market confidence.

Geopolitical instability is the third layer of risk. Recent election turmoil (including the March 2025 detention of Istanbul’s mayor) and international relations uncertainties have made foreign investors cautious about Turkish assets, further weakening the lira.

Weaknesses of the Lira as an Emerging Market Currency

The Turkish lira is an emerging market currency with relatively low liquidity in global financial markets. This means that any political or economic turbulence can trigger significant volatility. The trend since early 2025 clearly illustrates this—initially stable at 35-36, it plunged to a high of around 42 within a few months, demonstrating the market’s sensitivity to political risks.

Despite attempts by the central bank to raise interest rates and reform the financial system, the depreciation trend of the lira has not been effectively reversed. The fundamental reason is that the three issues above remain unresolved, and policy framework improvements require time to validate.

The Fundamentals of the Turkish Lira

Understanding the basic characteristics of the lira helps in assessing its investment value:

Currency code and name: In Turkish, it is called Türk Lirası, with the international code TRY and symbol ₺. The smallest unit is 1 lira = 100 kuruş. The current circulating banknotes are in denominations of 5, 10, 20, 50, 100, and 200 lira.

Central bank and policy implementation: Issued and managed by the Central Bank of the Republic of Turkey (CBRT). In recent years, its policies often diverged from traditional central banking practices, raising questions about its independence.

Key Nodes in the 2025 Exchange Rate Trend

Monitoring the real-time performance of the lira, several important exchange rates warrant attention:

USD/TRY: From about 35-36 at the start of the year to around 42 in November, reflecting USD strength and ongoing pressure on the lira. In the short term (1-3 months), this pair may oscillate between 10.0-10.5, facing phased depreciation pressure, but there is technical support around 10.5. The December interest rate decision by the central bank will be a critical turning point.

EUR/TRY: Trading between 10.7-10.9 in mid-November, following the euro’s trend. If the euro maintains a long-term bullish trend, the lira may get some relief.

TRY/TWD: Currently around 0.23-0.24 (i.e., 1 TRY ≈ 0.235 TWD). The seasonal demand from Taiwanese travelers to Turkey around the Lunar New Year may support this rate in the short term, but medium to long-term movements are still dominated by USD trends.

Comparing Three Ways to Invest in the Turkish Lira

For investors considering exposure to the lira, there are three main options:

Bank currency exchange: Advantages include low threshold, no leverage, and relatively controlled risk, suitable for holding physical cash or travel needs. Disadvantages are large spreads, low liquidity, and some Taiwanese banks may not offer TRY exchange. Cash preparation may take 1-3 working days.

Futures contracts: In theory, they offer two-way trading and leverage, but TRY futures are extremely niche, with low trading volume, and most brokers do not open them to retail investors, limiting actual tradability.

CFD (Contract for Difference): Easier to access, supports two-way trading, 24-hour operation, and lower barriers. Investors can go long USD/TRY (bearish on the lira) or other currency pairs based on their judgment, offering higher trading flexibility.

Practical Tips for Currency Exchange When Traveling to Turkey

If planning to visit Turkey, pay attention to the following when exchanging currency:

In Taiwan, banks like CTBC, Cathay, and Taishin offer TRY exchange services, but call ahead to confirm cash availability. Airport exchanges are convenient but have poor rates and high fees, suitable only for emergencies.

Upon arrival in Turkey, use cash for small expenses (meals, transportation), and credit cards for larger purchases (shopping, accommodation). Coins (kuruş) are widely used locally for tips, buses, convenience stores, etc., so accumulate them naturally during spending. Avoid informal street exchanges; some “zero fee” ads may hide traps, and actual rates could be 10-20% worse than official prices.

What Type of Investor Is Suitable for the Lira

Given the ongoing Turkish economic crisis, investing in the lira is suitable in the following scenarios:

Short-term high-volatility traders: If experienced in forex short-term trading and able to grasp event-driven opportunities, the lira’s high volatility (monthly swings often reach 10%) can be used as a trading instrument.

Not suitable for medium- to long-term holders: The long-term trend of the lira is depreciation with occasional rebounds; profiting from appreciation is extremely difficult and risky.

Consider phased deployment: If optimistic about Turkey’s future reforms, adopt a phased small-amount entry strategy—convert USD into small amounts of TRY gradually, and use technical rebounds for swing trading, avoiding large one-time investments.

Future Outlook and Key Monitoring Points

In the short term, the Turkish lira remains under pressure. Likely continued high-level oscillation in 1-3 months, with the December central bank rate decision (expected to cut by 150 bps to 38%) being a critical turning point. Medium term, observe the actual effects of policy reforms; March 2026 inflation data will test whether the central bank’s policies are effective.

Risk signals include a decline of over 5% in the Istanbul Stock Exchange Bank Index, which may indicate accelerated foreign capital withdrawal from Turkey, warranting caution for sharp lira depreciation.

Summary

The persistent depreciation of the Turkish lira is not accidental but results from a combination of policy credibility issues, economic structural imbalances, and geopolitical risks. For investors, the lira is a currency with clear turning factors but extremely high risks. Before participating, fully understand the fundamental nature of Turkey’s economic crisis, choose appropriate products and strategies based on your risk tolerance, and closely monitor relevant economic and political news to improve judgment accuracy.