The Religious Origins of Turkey’s Currency Crisis


A money changer counts Turkish lira coins at a foreign exchange office in Ankara, Turkey, September 27.



With the Turkish economy coming to a standstill due to the collapse of the lira, investors and economists wonder why President Recep Tayyip Erdogan continues the eccentric economic policy that caused the crisis. this. He has made it clear that his motives are primarily religious.

Mr. Erdogan has dominated Turkish politics for nearly 20 years in various roles – head of the Justice and Development Party, prime minister and president. Two notable features marked the first half of his rule: constant worry that fervent secular military leadership would unleash a coup, and extraordinary economic growth.

Everything changed in July 2011, when Erdogan forced the army chief of staff to resign, along with the heads of the army, navy and air force, giving him control of the armed forces. No longer fearing a coup d’etat, he was finally able to fully embrace the Islamic ideology that secular officers had bred.

That ideology emerged quickly. Erdogan supported his Muslim compatriots in Syria and Egypt in 2011, fueling tensions with Israel and the West, and flirted with abandoning the North Atlantic Treaty Organization in favor of the Shanghai Cooperation Organization. dominated by Russia and China in 2012. Domestically, the Turkish government increased taxes on alcohol and restricted sales and advertising, and religious schools became more common and better funded. .

When Mr. Erdogan took full control of Turkey’s central bank in 2018, he demanded, contrary to the practice of all other central banks, that it fight high inflation by lowering interest rates. . At first, he tries to hide his motives. During the 2018 currency crisis, Mr. Erdogan’s adviser, Cemil Ertem, summon ghost of the great Yale economist Irving Fisher (1867-1947) to justify low interest rates. Ertem even stated that Erdogan’s views “are the subject of contemporary scientific economic theory today”.

As the media scoffed afterward, Mr. Erdogan and his aides fell silent, offering no further explanation for the low interest rates as the Turkish lira steadily depreciated. This year, despite the Turkish central bank’s large foreign currency purchases, the lira fell from 7 per US dollar in February to around 18 in mid-December. (A short-term fix brought the exchange rate to 13, but the market looks unconvinced.)

On December 19, Mr. Erdogan explained that he was drafting a policy explaining the Quranic commandment forbidding the payment of monetary interest: “They complain that we continue to lower interest rates. Don’t expect anything. As a Muslim, I will continue to do what our religion tells us. This is the order.” That single disastrous comment sent the lira instantly falling. 12%. The realization that Mr. Erdogan’s policies are based on the direct commands of the Quran, and not the theories of a dead American economist, has rattled markets.

Erdogan’s confidence in interest rates has had a devastating effect on Turkey. Protests and famine are widespread, and the country could go the way of Venezuela. Duke economist Timur Kuran said the coming turmoil gives Mr Erdogan and his minions “an opportunity to declare emergency rule and stay in power despite unpopularity their favourite”.

Erdogan’s saying “our religion speaks to us” shows a reliance on medieval notions of finance, regardless of the harm they cause. But medieval religious regulations don’t mix well with modern finance – or with most things. The success of Islam in the modern world requires a rethinking of Islamic law in the current circumstances. The canonical regulations can be construed as to allow for reasonable interest payments while prohibiting spurious interest payments.

Five hundred years ago, Jews and Christians shared with Muslims animosity toward paying interest, but they eventually accepted this financial necessity. Muslims are subject to or risk more unrest, persecution, and poverty than in Turkey and other Muslim-majority countries.

Mr. Pipes is the president of the Middle East Forum.

The Editorial Review: The Worst Years by Kim Strassel, Bill McGurn, Mary O’Grady, and Dan Henninger. Image: AFP / Getty Images Synthesis: Mark Kelly

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