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The Turkish Gambit: How Trump's Trade Wars Help To Make Cryptocurrency Liquidity

19 November 2018 14:29, UTC
The Turkish Gambit: How Trump's Trade Wars Help To Make Cryptocurrency Liquidity
By Oleg Koldayev, Anna Zhygalina

In percentage terms, Turkey ranks first in the world in the number of private holders of digital currencies. According to statistics, 18% of the population has some kind of virtual assets, that is, more than 14 million people. At the same time, until recently, there were few deals with tokens. Only 6 digital exchanges operated on the territory of the country, three of which were conventionally large - Paribu, Koinim, and Btcturk. At the same time, the maximum daily trading volume being recorded was only $11.6 million. For comparison: the daily turnover of Binance exceeds $5 billion. Simply put, the citizens of Turkey preferred to save rather than invest. But the situation has gained an interesting and unexpected development.

Since the beginning of the year, the Turkish lira has lost almost 40% of the cost. Many experts, as well as the French economist, the employee of the Institute for International and Strategic Studies (Paris) Rémi BOURGEOT, blame the initial overvaluation of the national currency, which is characteristic of many countries of the Middle and Near East. And some people, like our commentator, Andrew ROSENBAUM, a specialist of the European blockchain association, believe that the political ambitions of the ruling elite are guilty of the Turkish crisis: "The Turkish economy is failing because the government is pumping money into the economy trying to buy votes, but now, the money is running out and the authorities are not allowing the Central Bank to raise interest rates so that lira can recover its value."

Both points of view have a right to exist, and both are right in their own way, but we must not forget that the trigger for the devaluation of the Turkish lira was a challenge from the United States.

At the beginning of the year, Donald TRUMP tweeted: “Trade wars are good. They are easy to win.” On the one hand, the American president is in a position to think so, since the US economy is still the most powerful in the world. On the other hand, there is a problem: the United States can no longer stop; they must constantly confirm their global status and maintain the position of the dollar as a world reserve currency so that the domestic market does not collapse because of a liquidity deficit. The former businessman and twice bankrupt Donald TRUMP does his best to keep the country's financial system - starts trade wars against rivals.

There are four pretexts for such a war against Turkey: Recep Tayyip ERDOĞAN’s uncertainty in the Syrian issue, the contract with Russia for the supply of C-400, the position on “Southern Stream-2”, and the story with the arrest of the American pastor Andrew BARNSON, who is accused of assisting a coup attempt. “Turkey behaves very badly ... Turkey behaves not in a friendly way,” TRUMP took offense and, along with the increase in import duties on steel (50%) and aluminum (50%), threatened to introduce additional economic sanctions. However, there can be many pretexts, but one reason: the internal problems of the United States, which have overheated the national economy in the pursuit of global domination.

But when you pull the pendulum too much to one side, you energize it to go to the other extreme. If the United States takes any aggressive actions towards other countries, then the citizens of these countries seek refuge for their funds in assets not associated with the superpower directly or indirectly. Such a tool is decentralized digital currencies.

“The crypto-market in Turkey is getting bigger every day. If nine months ago there were only six cryptocurrency exchanges in the country, now, there are already more than 20 of them,” says David Tevfik SAYIN, the director of an IT company. In other words, the activity of citizens and companies in the digital market has increased 3.5 times since the start of the trade war.

This could not but influence the position of the Turkish authorities regarding the creation of national digital payment instruments.

“The world is moving to a new digital system. While it’s not too late, Turkey should create its own digital system and currency,” said the country's economy minister Ahmet Kenan TANRIKULU. But Turkey is not the first country in the world that is looking for a cure for the crisis in the digital market.

Experts’ opinions on whether the national cryptocurrency can become a tool in winning through the after-effects of economic conflicts separated.

“Turkish companies do not have enough recourse to pay off debts in foreign currency.” says Andrew ROSENBAUM, “Digital assets could be a new source of income to pay off debts.” The international independent expert of the financial and crypto-market Mustafa Caner KIZGIN agrees with him. He is sure that the main reason for the global crisis is fiat money and the credit system that we use today. A more stable, more reliable, and faster solution based on crypto-technologies will be good for the economy of the Republic of Turkey, which has a large manufacturing sector. But only under the sole condition – there must be centralized assets.

“If we look at the history of the world monetary system, we will not find such a currency that has survived in the decentralized system. No matter if it is national or not, but if the idea of ​​a new cryptocurrency is decentralized, it will not be able to prevent volatility,” KIZGIN noted.

There are those who are skeptical about the national cryptocurrency project. For example, David Tevfik SAYIN believes that Turkish citizens are not ready to use digital coins in their daily lives yet: “The cultural instincts of the Turkish people are not similar to American or European ones. Generation Z aims at digitalization of course, but I think that the Turkish people as a whole want to preserve their physical material values.”

No matter how many disputes around the idea of the national Turkish virtual currency are going on, the coin is already being developed. It is assumed that this will be a stablecoin backed by securities of Turkish Airlines, Turk Telekom, and the Istanbul Stock Exchange. The authorities are trying to use the favourable moment and strongly support crypto-optimistic moods in society. On the one hand, this will help de-dollarize the consumer market by changing the structure of savings. On the other hand, virtual assets can become a means against US sanctions.

“The government is talking about an economic war being made by the West against Turkey and it seems that it sees a way out in popularizing virtual coins that are not subject to American influence. Central Bank officers believe that cryptocurrencies can contribute to global financial stability,” stresses the digital market consultant Deniz Karabacak. “In addition, about 50 companies are already officially operating in the country, they officially accept payments in Bitcoin and some other cryptocurrencies.”

Today, the United States is making several trade wars, and in each of them, to one degree or another, national digital coins are involved. Venezuela has already released its coin, the Iranian cryptocurrency project is being approved by the Central Bank of the country, and China is actively developing the blockchain, which can eventually become an infrastructure for state virtual assets. However, the very idea of ​​national cryptocurrency raises questions: how will central banks ensure the liquidity of digital coins on the sidelines of fiat money? Can the release of a crypto be considered an additional issue? Won’t it lead to an additional round of inflation? And the main point: won’t the cryptocurrency depreciate?

There is one very interesting historical analogy. During the Second World War, a huge amount of gold was brought to the market and weapons were purchased for it. The volume of trade can be illustrated by one fact: the reserves of the United States, the main military supplier of the countries of the anti-Hitler coalition, rose to the record of 20,205 tons of precious metal at that time. And did the price of gold fall at that moment? Nothing of the kind. It grew from $33.5 per Gold Ounces to $35. The war gave the gold asset additional liquidity.

Today, the situation may repeat: the trade wars that the US makes, economic sanctions, and financial pressure from the West can pump digital coins of the countries in economic blockade with liquidity. In case that Russia, China, and Saudi make a political decision to sell oil for the crypto. In such circumstances, even Venezuelan Petro has a chance to become a popular means of payment.

S foreign policy towards not only opponents but also allies leads to the fact that Turkey, an early member of NATO, the main US military partner in the Middle East, wants to say goodbye to the dollar system. This is to say about the crisis of the entire Western geopolitical model: the principle of "beat the dog before the lion" does not bear economic fruits.



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