Turkey is relaxing its ban on using foreign currencies, with the country announcing exemptions for business agreements, which includes export-related contracts, capital market instruments, and employment contracts that involve foreigners.
On Saturday, the Official Gazette announced that the exemptions would also apply to areas such as sales of software made abroad, ship leasing contracts and contracts involving state institutions. However, this is only if they are not related to property or employment.
Back in September, Turkey’s government said that property sales, leasing transactions, and rent contracts must be in Turkish lira (TRY), stopping foreign currencies being used for these type of contracts. The move, along with other foreign currency bans, was done to support the TRY, which so far this year has fallen by 38 percent.
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For contracts that are not covered by the exemptions and are currently in foreign currency, if they are not able to be renegotiated, then they will be automatically converted to TRY at the official exchange rate as of January 2. In addition, they will be raised in line with consumer price inflation rates.
Woes of the Turkish lira
The financial crisis in Turkey is the result of the President of the United States, Donald Trump, announcing the doubling of steel and aluminum tariffs on Turkey. This was in retaliation for the imprisonment of an American pastor Andrew Brunson in the country.
At the beginning of this year, the TRY stood at 3.8 against the US dollar (USD). However, on Monday, the lira was at 6.15, following from a close of 6.1205 on Friday. Against the euro (EUR), at the start of 2018, the TRY was at 4.5. Now, the currency has fallen to 7.08.
Since the Turkish government announced the ban of the use of foreign currencies for certain contracts, economists and industry participants have voiced their doubts over the effectiveness of the move – stating it wouldn’t have a permanent positive impact. Specifically, they said that it was likely to bring further strain to Turkey-based companies with foreign currency debt.