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Why are everyone concerned about Turkey's foreign reserves?

Editing: Sally Ismail

direct: The central bank in Turkey has not explained the recent moves in its foreign currency reserves, which has made investors nervous.

The Turkish lira fell more than any other currency on Thursday (April 18th) amid speculation the central bank was using borrowed money from commercial banks in short-term swaps to boost its foreign reserves.

And fell down The pound is about 2% on the back of concern Growing before limiting these losses later.

A Bloomberg report provides a quick overview of what happens in Turkey's foreign exchange reserves through six questions.

What is the size of Turkey's foreign exchange reserves?

The answer to this question depends on what is calculated, where the net international reserves as defined by the International Monetary Fund at 28.4 billion dollars in the week ended 12 April.

But the central bank says the focus on net figures is misleading and urges investors instead to look at its total reserves of just under $ 98 billion.

The Central Bank of Turkey announces the lowest figure because of the bank's signing of a financing agreement with the IMF nearly two decades ago, according to former Central Bank deputy governor Ibrahim Turhan.

Turhan agrees that it makes sense to focus on the total figure, which includes the money placed by commercial lenders in the central bank against their dollar obligations.

As long as the Turkish population keeps their savings in foreign currencies in banks, part of that cash will remain in the central bank, which can use the money in any way it deems appropriate, in Turhan's words.

Why are investors paying close attention to Turkey's reserves?

Turkey has $ 118 billion of foreign exchange debt repayable over the next 12 months.

Ankara needs to protect the central bank in order to meet these obligations if the flow of capital financing the economy is slowing.

Foreign investors have already withdrawn a net $ 1.6 billion from the lira-denominated bond market this year amid political and economic turmoil.

The sudden drop in reserves in March contributed to the largest daily decline in the value of the lira since the collapse of the currency last year.

JPMorgan advised investors to sell the Turkish lira because of the fall in foreign reserves at the time.

Why investors fear the possibility of inflating reserve numbers?

Last month, the Turkish central bank began borrowing excess foreign currency from commercial banks through foreign exchange market (FOREX) swaps and lending to Lira banks in return.

Since the introduction of swaps, there has been a steady upturn in the central reserves of the Turkish central bank, reinforcing speculation that the bank was using borrowed funds to give the impression that its foreign exchange reserves were growing while a large share of those funds were for other uses.

How much money are we talking about?

During the first three weeks following the introduction of foreign exchange market swaps until April 12, net reserves rose by just over 20 billion lire or about $ 3.5 billion at the exchange rate on Thursday.

The amount borrowed by the central bank during that period was slightly less than $ 13 billion, leaving about $ 9 billion, calculated according to the assumption that the amount borrowed is reflected in reserves (the difference of borrowing and the value of the increase in net reserve value). If so, Keeping the net reserves stable The central bank will need to renew the swaps every week when it is due.

So where are the money?

We do not know, that's the answer in short.

The long answer is that the amount that the central bank may have used to repay external debt is due to be paid or sold to the Turkish government's energy company, which pays for the gas imports, does not approach the missing figure between what it borrowed and what was added to the net reserve.

This led to speculation that the central bank is using its foreign currency holdings to support the lira in the market.

But the Turkish central bank is obliged to declare any possible intervention in the currency market, while it did not disclose any similar step.

According to Central Bank data, the last time such an intervention was disclosed was on January 23, 2014.

This prompted investors to wonder whether the bank was interfering indirectly.

Currency traders say government lenders have been on the selling side of dollar trading in recent weeks.

What do investors say?

Most economists believe that the central bank owes investors a comprehensive explanation of what appears to be a contradiction in foreign exchange reserves data.

Indeed, the credibility of the bank has been questioned after repeated pressure from President Recep Tayyip Erdogan, who began to implement increasingly intrusive economic policies and criticized banks to give negative expectations.

The situation is not merely a matter of transparency over certain precautionary data, according to Brown Brothers Harriman, global director of currency strategy.

He adds that the most prominent point here is that the institutional framework seems to be experiencing further disruption in Turkey.


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