The Currency Dived 20%!,The Risk Of Exporting To The Middle East Power Has Increased Dramatically
Issuing time:2022-11-08 14:54
"25% depreciation in the year, nearly 20% depreciation since the beginning of September, and still breaking new historical lows" - this is the recent performance of Türkiye's local currency lira. The lira has become one of the worst performing currencies in emerging markets this year. In Türkiye, accompanied by the sharp decline of the lira, there are also hyperinflation and ultra-high unemployment. At present, when exporting to Türkiye, pay attention to the security of payment!
Lilacun creates a new low
At present, the exchange rate of Türkiye's lira against the US dollar has broken through the 10 threshold, hitting a record low. Last Friday (November 12), the lira even depreciated by 1.21% in one day, which is a dive.
Since this year, the Türkiye lira has depreciated by more than 25%, making it the largest currency among emerging economies. In the past five years, the lira has even depreciated by two thirds. Over the years, the devaluation of the lira can be called a "textbook", with annual devaluation exceeding 10% for eight consecutive years.
This year, the monetary policy of Türkiye's central bank led to the accelerated depreciation of the lira in the past two months.
Now it is unclear what "crazy experiment" Türkiye's President Recep Tayyip Erdogan is doing. For a long time, he has been calling for monetary stimulus measures to promote credit, exports and employment. In less than two and a half years, he dismissed three central bank presidents and several members of the monetary policy committee who opposed interest rate cuts in October.
On October 21, the Central Bank of Türkiye shocked the market again and cut the policy interest rate sharply by 200 basis points to 16%, realizing Erdogan's easing requirements when inflation rose. At the same time, Türkiye's lira fell sharply.
Ulrich Leuchtman, an analyst at Commerzbank, said: "This move is consistent with Erdogan's view, but his monetary policy is completely wrong. Now we are facing the risk of exchange rate seriously impacting the real economy." He said: "All this can only end with the collapse of the lira."
At the beginning of September, the lira exchange rate was still at the beginning of 8 words. It plummeted by nearly 20% in two months and directly broke 10. What is the concept?
50 cents witness the devaluation of lira
As we all know in foreign trade, when a country's currency depreciates, it is beneficial to exports rather than imports, and import costs will increase with the extent of currency depreciation. Think about it, who is willing to bear such exchange losses for Türkiye importers who ordered goods in September and delivered goods in November?
In addition, Turks who feel that "money is worthless day by day" begin to "vote with money" and purchase foreign exchange crazily to protect themselves from currency depreciation and rampant inflation. According to the data of the Central Bank of Türkiye, as of October 1, the foreign exchange deposits held by local residents totaled US $232.7 billion, an increase of 20% over the beginning of 2020.
With the continuous decline of Türkiye's lira, the Ministry of Finance of Türkiye has issued new regulations requiring currency changers to register the identity of customers. Previously, only customers with a transaction amount of more than 3000 dollars were required to submit personal information.
The economy was hit hard
First, let's talk about a concept: major economies set 2% CPI at a reasonable level. If it exceeds 3%, there is a risk of runaway prices. If it exceeds 5%, it is considered as hyperinflation.
Türkiye's CPI was 8.55% in October 2019 and 14.97% in January 2021. By October this year, the CPI had climbed to 19.89%.
Affected by inflation, prices in Türkiye have risen sharply since this year, food, transportation, housing prices and other commodities closely related to people's livelihood have risen even higher, and the prices of imported commodities have risen steadily. In October, the price of food and non-alcoholic beverages rose the most, reaching 27.41%, followed by 25.53% in hotels, cafes and restaurants, and 23.03% in furniture and household equipment.
"Türkiye's prices are rising too fast! We can't figure out what is cheap and what is expensive. Anyway, no one runs faster than inflation."
Türkiye hawker detained for protesting against soaring prices and inflation
According to the official data of Türkiye, the epidemic doubled the number of poor families to 6.63 million in 2019-2020.
In the first eight months of this year, more than 60000 enterprises in Türkiye went bankrupt. At present, the unemployment rate in Türkiye is more than 10%, and the youth unemployment rate rises to 22%.
Factories in Europe
Türkiye is called "the factory of Europe" by European media. Fitch International Credit Rating Agency confirmed in its latest analysis report that Türkiye will benefit most from the transformation of European supply chain.
Due to the geographical advantages and the factors of soaring shipping costs this year, the data recently released by Türkiye Exporters Association shows that Türkiye exported US $40.858 billion of goods to the EU in the first half of this year, up 42% year on year.
Türkiye's main advantageous export products include clothing, shoes and hats, televisions, washing machines, ovens, dishwashers and other household appliances.
The German Economic Weekly once calculated that the cost of producing an ordinary pair of jeans in Germany was 35 dollars, while in Türkiye it was only 15 dollars. If the production, transportation and import costs are added up, the cost of jeans produced in Türkiye is more than 5% cheaper than that in China.
However, some European media believe that Türkiye is the springboard for China to enter the European market, or the door to open the European market.
Senior foreign traders may have heard that there is a classic hoax called "Türkiye hoax". It is because of the "wonderful regulations" of Türkiye Customs - the freight forwarder needs to register the goods in the name of the consignee before the ship arrives at the port of Türkiye, and any change in the future requires the written consent of the original consignee. The direct result of this provision is that the ownership has been transferred to the consignee before the actual delivery of the goods, regardless of whether the consignee has fulfilled its obligations in the trade contract.
After the goods arrive at the port, the importer shall complete the formalities of picking up the goods within 45 days, otherwise the goods will be confiscated and auctioned. However, after the expiration of 45 days, the consignee (buyer) has two opportunities to apply for extension, 30 days each time, and does not need to submit reasons for extension. Thereafter, the consignee has another opportunity to apply for a 30 day delay in picking up the goods, but needs to explain the reason for the delay to the customs. Therefore, with the cooperation of the consignee, the goods will not normally enter the auction process within 135 days after arrival, but the demurrage, warehousing and other costs incurred during this period are unavoidable.
For goods that have been detained in the port for a long time or have not been picked up, the customs will treat them as no owner and have the right to auction the goods. At this time, the original importer is the first buyer.
This creates conditions for swindlers to cheat goods.
The fraudster will first register a short company in Türkiye, and the company will cheat the goods exported by China to Türkiye customs, deliberately delay time, leading to the final customs auction, then buy at a very low price, and then sell at a high price to share the spoils.
Especially in the current situation of Türkiye's exchange rate plummeting and the economy facing high risks, importers are likely to use this loophole to pit suppliers under cost pressure, so please pay attention to the security of payment for goods when shipping to Türkiye!