Love him or hate him, Turkish Prime Minister Recep Tayyip Erdoğan is rarely anything other than eminently quotable. But from time to time he expresses an idea which strikes a chord with many people outside his natural constituency, and during a recent riff during the Fifth Bali Democracy Forum – an annual event that has been held since 2008 and which focuses principally on democratic developments within Asia – he did so again in a series of remarks directed to the International Monetary Fund (‘IMF’), where he openly questioned the value of cross-border transactions being denominated in a currency belonging to any single nation (or, by implication, a group of nations). According to Erdoğan, the world should consider switching ‘to a monetary unit such as gold, which is at the very least an international constant and indicator which has maintained its honor throughout history. This is something to think about.’
A few years ago, such comments would have seemed implausible, but it is now easy to imagine many economic sages agreeing with the leader of the Justice and Development Party, a political entity that has ruled Turkey since 2002. With major paper currencies losing value against precious metals and gold in particular enjoying something of an international renaissance, it seems logical enough to suggest alternatives to the present (and still largely dollar-based) arrangements of international finance and trade. But we believe that there are also other plausible reasons behind Erdoğan’s position:
1. Losing Faith in the United States. While Turkey has generally excellent relations with the USA, it does not seem entirely convinced of the future economic health of its NATO ally. A keynote speech by Erdoğan’s Deputy Prime Minister Ali Babacan at the 2012 Istanbul Finance Summit (24th-25th September 2012) was instructive in this regard: ‘When we take a look at the United States, we particularly see an ambiguity in its finance policies…after the election if [the new American government] does not take quick decisions about the debt ceiling and automatic [spending cuts] and does not carve out a reliable programme for 2013 and the period after, 2013 may be a year that the economy of the U.S. is debated…Governments cannot rely on central banks that provide liquidity to markets by printing money and say, “we have overcome the crisis.”’
2. Culture. Owing not least to a long experience of persistently devalued paper currency during the republican period (1923 -), Turks value gold much more than most people in the West. Turkey is a country where gold vending machines, gold-based mutual funds and deposit accounts evince a solid belief in gold as a store of value that is unequalled even by the considerably revalued Turkish lira; there is an estimated 5,000 metric tonnes of gold within Turkey, most of which is held privately.
3. Lirazone? The Turkish Prime Minister’s remarks should also be seen in the context of his recent floating of a potential ‘lirazone’. Although Turkish lira are unlikely to be perceived as a viable reserve currency anytime soon, the lira’s international cachet has rapidly accelerated since 2005, with a new, fetching lira symbol being introduced internationally earlier this year; a gold-backed lira could potentially make the lirazone a more realistic proposition.