All Turkish citizens are already millionaires. The reason is the Turkish Lira - the world’s smallest valued unit of currency.

With one lira worth approximately 0.000000743971 US dollars, a bar of chocolate can often cost more than a million, while monthly salaries run into billions, and the national budget goes into quadrillions.

“It’s totally confusing,” says Ellie van Erne, a tourist from Holland shopping in Istanbul’s famous Grand Bazaar. “You look at the notes and the zeroes seem to almost go off the page.”

Dividing by a million

Yet all that may be about to change, as the Turkish parliament discusses proposals to slash six zeroes off the national currency, pulling it sharply back down to a more manageable TL1.336 to the dollar, at current rates.

Behind this move too stands a remarkable story of recovery by Turkey’s currency, which has appreciated 17.69% over the last twelve months.

It is the first time many younger Turks have ever witnessed the mighty dollar falling.

“It’s very strange for us,” says Elif Gundoglu, a 20-year old student at Istanbul University. “Every year since I can remember, the dollar went up every week and the TL came down. It seemed like the sun rising and the moon setting – a sort of natural phenomena.”

“At last we’ll be able to write prices without extra-sized stickers”

Erol Bakirci,
Istanbul shop owner

The lira has not consistently appreciated since the mid-1960s. Analysts are divided on what may be behind the strong Turkish Lira, yet most point to two factors.

Money under the mattress

“No one knows exactly what’s behind this,” one analyst for a top Istanbul brokerage told Aljazeera.net, “but it seems one factor is that a lot of the money that Turks have traditionally kept at home, under the mattress, is moving finally onto the market”.

Turks have traditionally been mistrustful of banks, and kept large savings at home, usually in the form of foreign currencies and gold.

Estimates of this hidden reserve vary, but it is widely thought to amount to some $30 billion. They are now selling this on the market, and driving down the price of dollars and euros.

“Another factor here is that both just before and after the Iraq war,” adds the analyst, “a lot of funds moved to Turkey out of the Middle East. You could go to a bank and ask for dollars and find stamps in Arabic all over the bills they gave you.”

Turkey became a safe haven, some analysts suggest, for savings from Syria and Iraq, which were usually in dollars or euros. This flooded onto the Turkish market, driving down exchange rates.

Good news

Meanwhile, “Turks also switched to lira-denominated investment instruments in expectation of lower deposit and bond rates and further lira appreciation,” says economist and commentator Burak Bekdil.

Once the move out of foreign currency began, it took on a momentum of its own.

Turkish delight sellers and other
businesses enjoy economic revival

In addition, the latest figures for Turkey’s overall economic performance in 2003 have been good, winning the government praise from the Islamic Independent Industrialists’ and Businessmen’s Association (MUSIAD), which described their performance as “very successful” in its 2003 end of year survey.

Consumer price inflation has fallen to 18.4% - down from the triple digit levels of the late 1990s and early ‘00s – further adding to the strength of the lira.

Meanwhile, the stock market has boomed – hitting its highest ever levels in early January. Elsewhere, exports have jumped 32.4% year-on-year, according to official figures – and despite the appreciating lira.

New Lira prospect

“The resumption of trade with Iraq has also made an impact,” the leading Istanbul brokerage analyst adds. “That’s now around $2 billion.”

“Every year since I can remember, the dollar went up every week and the TL came down. It seemed like the sun rising and the moon setting – a sort of natural phenomena.”

Elif Gundoglu,
student at Istanbul University.

With all these healthy looking statistics, the government’s plan to launch a New Lira has received widespread backing.

“It’s an excellent step to let the people of the country know that things are working out,” the analyst says. “It should have a good psychological impact, as suddenly, people will be talking normal numbers again.”

Once accepted by parliament, the New Lira will come into circulation on 1 January 2005, completely replacing the old lira by the end of the year.

One New Lira will be worth one million old ones, and will be subdivided into 100 kurus, the old Turkish minor coin that has not seen use for decades. However, others are more cautious.

Caution

“Depending on the future success of the anti-inflation programme,” says Bekdil, “the plan may work out. But another crisis and subsequently a sudden rise in inflation rates after the new lira has been launched would make the entire plan useless.”

Analysts generally see another crisis as unlikely, but there are concerns that the large quantities of foreign money that have suddenly moved into Turkish Lira may just as suddenly move out.

“Technically speaking,” adds Bekdil, “the lira appreciation should be sustainable. It is, however, exposed to political risks.

"The moment foreign portfolio investors decide for some reason to switch to foreign currency holdings and the Turks for psychological reasons follow suit, then you have a reversal of the process.”

Meanwhile, for many ordinary Turks, the loss of six zeroes will likely go unlamented.

“At last we’ll be able to write prices without extra-sized stickers,” says Erol Bakirci, a shop owner in Istanbul.