How does a currency lose nearly 20% of its value in a day?
Once a country’s Central Bank can no longer make key policy decisions with full independence from the political parties at power, the actual grading of that currency’s investment status deteriorates at such an astronomical rate which causes an enormous sell off as large institutions are forced to pull funds from the currency to match their internal mandate’s exposure to the currency.
This is exactly what happened with the Turkish Lira on the 23rd of November 28, 2021. The country is well known for their unstable monetary authority at power as there has been three different Central Bank governors in the past two years. This is mainly due to the lack of independence within the capabilities of their monetary authority as the country’s president and leading party, the AK party, are abusing the system to pass monetary policies which is not aimed at the longevity of their economy as they have a two-decade long history of increasing inflation which has made many of their residents poorer within a merely a few years.
South African’s have seen similar crashes in the Rand before, could we see something similar in the future?
The situation with the Turkish Lira’s most recent crash and its current inflation levels at around 20% is not too far off with where’s South Arica is heading. In Turkey, their president and ruling party is of the opinion that higher interest rates will increase inflation and their economy would be worse off than by keeping interest rates so low that their economy grows at exponential rates by creating much more jobs and of course to increase their popularity right before the 2023 elections.
All very similar to what we have seen in South Africa, as our ruling party has a long-standing history of corruption and the misuse of the Country’s resources and infrastructures in order to perpetuate their grip over the country’s inability to recover from increasing poverty levels.
The most important lesson we can learn from the Turkish Lira’s collapse.
Think about South Africa’s economic situation i.e., record high unemployment rates, a currency that has devalued by more than 120% over the past decade and a government that is losing support from the largest segment of their voter base, those who have been promised economic opportunities, lives outside of poverty and prosperity for future generations to come. It is difficult to say what is going to happen to the Rand, but we are seeing similarities from the political and economic environment that has led to the collapse of many other countries’ currency such as Turkey,
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Caveat Capital MGMT (Pty) Ltd is a CATII – Authorized Financial Services Provider (FSP no. 24777) registered at the South African Financial Services Conduct Authority (FSCA).