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So, is Turkey and Venezuela the two major countries that are actively going through a currency crisis? What are they doing that’s so different from everyone el

So, is Turkey and Venezuela the two major countries that are actively going through a currency crisis? What are they doing that’s so different from everyone else? Drop interest rates, print more money. I don’t know what Erdogan’s plan is, but unless they find strong export partners, devaluing the currency isn’t going to work out. We expect everything coming out of Turkey to be cheaper now, but who’s buying (importing)?.

lotsofpulp 5y ago
>What are they doing that’s so different from everyone else? Drop interest rates, print more money. Having an even more dysfunctional government with leaders that cannot be trusted. Currency is only worth as much as the people using it can produce desired goods/services.
adam_arthur 5y ago
Erdogan has been pushing for lower rates despite high inflation. Also believe he fired a few of the central bank chiefs.
dekhn 5y ago
Um. Please go do a little research about Venezuela's situation before proposing a simple, wrong solution. They have badly mismanaged their financial and political situation for a long time and are not equipped to make the necessary changes to remedy this (whether the answer be "print more money"). If you'd like to know more about their situation, I recommend reading "The Prize" and "The Quest". Much of the root of their problems come from nationalizing their oil industry and subsidizing local oil, although that's not the entire explanation.
- anticodon 5y ago
  Wouldn't stealing all the foreign assets of Venezuela by US and UK also affect the Venezuela economy?
  - simonh 5y ago
    Freezing, not stealing, because the chances those assets would be used for the actual benefit of Venezuelans is pretty much zero. They will be returned when Venezuela has a legitimate government.
    - mysecretaccount 5y ago
      This is propaganda. The US sanctioned Venezuela to because they do not want anyone in their sphere of influence nationalizing important export industries like oil.
    - aunty_helen 5y ago
      Very rightous of the US. Getting to decide who does and doesn't get to self govern.
      - lotsofpulp 5y ago
        Opposing parties choose to come to the US for that very reason. They trust the US courts to uphold contracts more justly relative to other jurisdictions. The US’s trust is it’s most important asset.
    - CyanBird 5y ago
      > They will be returned when Venezuela has a legitimate government. ??? They have had all this time, it is them who do abroad visits and diplomacy with CARICOM It is only anglosphere the ones that don't want to recognize Venezuela
  - rsj_hn 5y ago
    > Wouldn't stealing all the foreign assets of Venezuela by US and UK also affect the Venezuela economy? There are a number of things wrong with this statement. 1. Timing is off. The U.S. didn't freeze Venezuelan assets until 2019 after Chavez died and the economy had already collapsed. 2. $342 Million in cash was frozen and 1.1. million barrels of oil were seized, the rationale being that this was a small dent to offset the amount of Western assets that Venezuela nationalized without compensation. 3. For years before the US responded, Venezuela nationalized foreign investment in its oil industry, gold mining, agriculture, telecomm, banking, auto manufacturing, paper products, Satellite communication, pharmaceuticals, and many other industries - most seized without compensation. Prior to the 2019 action, the US basically left foreign investors without recourse, as they had to file lawsuits in courts in order to try to obtain compensation. The value of the foreign assets seized by Venezuela far exceeds the value of Venezuelan foreign holdings seized in response. The real problem for Venezuela is the flight of human capital by those with skills. Venezuela lacks the skilled workers to operate the industries it has nationalized, which is part of the reason for the economic collapse - the other part being simply the usual effect of socialism on reducing productivity due to the breakdown of the price-system.
tastyfreeze 5y ago
Lebanon as well.
delabay 5y ago
You're forgetting Lebanon
roperzh 5y ago
You can safely add Argentina to the list
JanisL 5y ago
In the modern world we primarily have banking systems that are based on fractional reserve banking and currencies without any explicit backing. This means that from a forex point of view the currencies are only worth as much as there is confidence in them. (National currencies often derive power in a practical sense due to taxes having to be paid in those currencies even without any explicit backing of the currencies value). Because of these dynamics if everyone were to try to withdraw their money from the bank at the same time there would be a major problem because the banks don't have the money to cover it. An event that makes people in a country all want to withdraw their money will cause a crisis just about everywhere at the moment. Sure you'll get people from the central bank saying they can create enough money to pay everyone out, which they can pretty easily do due to the fact that most money now is just entries in a database. But the problem in all modern banking crisis situations isn't so much the act of giving people money its what you can buy with that money. (A caveat, when things get really bad like they did in Venezuela the currency degraded so much that the government had problems paying for the printing and transport of new banknotes with even more zeros, but that's a rather exceptional case that occurred very late in a crisis, again the money was buying less) Banking crisis conditions can come about for a variety of different reasons but they all involve some lack of confidence in the ability to be able to exchange money for goods at a later point in time. This can come about because people aren't able to access their money in the banks (Eg Cyprus crisis) or because the value of the money is rapidly deteriorating (Eg Yugoslavian Hyperinflation) or because there's some event that devalues the currency. This is by no means an exhaustive list, but it shows that different things in different places can cause crisis situations to emerge. There's some interesting work that was done by the Bank of International Settlements about the early warning indicators for systemic banking crises. Seeing what was happening in Turkey inspired me to write about bank bail ins. Along with bail outs this is something that you'll likely see in banking crises. More detail about the early warning indicators and bail in mechanisms here: https://www.lesinskis.com/bank-bail-ins.html https://www.lesinskis.com/bank-bail-ins.html I also talk about this in the article but I don't think it's easy to neatly determine where currency crisis situations "start". There's at least 14 countries in the world that are in what could be the early stages of a banking and currency crisis but it's likely that people will only say they are in a crisis at a much later stage where the problems are so big they are impossible to ignore. Other places like Canada get ignored routinely but the situation there could rather easily turn into a major crisis unless something changes there.
mrighele 5y ago
> What are they doing that’s so different from everyone else? Erdogan thinks that high interest rates causes higher inflation, while it is generally agreed that it's the other way around, so every time that he speaks in public and says that the rates will fall (the Central Bank is nominally independent, but in practice will do what he wants) or the CB follow on his promise, the markets react accordingly. The last crash was one of such cases. I think the official rates are about 15%, with an official inflation of 19% (in practice it's at least double, so much that when the government announced new prices for a number of taxes and fines, they were increased by more that 35%), and a Lira that lost half of its value in a years, who is going to buy Turkish currency ?
colechristensen 5y ago
You don't get runaway inflation if the value of your imports is somewhere in the neighborhood of the value of your exports (a fairly large imbalance is fine). You do get runaway inflation when your import needs far exceed your export ability, you print money but prices rise continually faster than you print, regardless of how fast you print.

lotsofpulp 5y ago

>What are they doing that’s so different from everyone else? Drop interest rates, print more money. Having an even more dysfunctional government with leaders that cannot be trusted. Currency is only worth as much as the people using it can produce desired goods/services.

adam_arthur 5y ago

Erdogan has been pushing for lower rates despite high inflation. Also believe he fired a few of the central bank chiefs.

dekhn 5y ago

Um. Please go do a little research about Venezuela's situation before proposing a simple, wrong solution. They have badly mismanaged their financial and political situation for a long time and are not equipped to make the necessary changes to remedy this (whether the answer be "print more money"). If you'd like to know more about their situation, I recommend reading "The Prize" and "The Quest". Much of the root of their problems come from nationalizing their oil industry and subsidizing local oil, although that's not the entire explanation.

anticodon 5y ago
Wouldn't stealing all the foreign assets of Venezuela by US and UK also affect the Venezuela economy?
- simonh 5y ago
  Freezing, not stealing, because the chances those assets would be used for the actual benefit of Venezuelans is pretty much zero. They will be returned when Venezuela has a legitimate government.
  - mysecretaccount 5y ago
    This is propaganda. The US sanctioned Venezuela to because they do not want anyone in their sphere of influence nationalizing important export industries like oil.
  - aunty_helen 5y ago
    Very rightous of the US. Getting to decide who does and doesn't get to self govern.
    - lotsofpulp 5y ago
      Opposing parties choose to come to the US for that very reason. They trust the US courts to uphold contracts more justly relative to other jurisdictions. The US’s trust is it’s most important asset.
  - CyanBird 5y ago
    > They will be returned when Venezuela has a legitimate government. ??? They have had all this time, it is them who do abroad visits and diplomacy with CARICOM It is only anglosphere the ones that don't want to recognize Venezuela
- rsj_hn 5y ago
  > Wouldn't stealing all the foreign assets of Venezuela by US and UK also affect the Venezuela economy? There are a number of things wrong with this statement. 1. Timing is off. The U.S. didn't freeze Venezuelan assets until 2019 after Chavez died and the economy had already collapsed. 2. $342 Million in cash was frozen and 1.1. million barrels of oil were seized, the rationale being that this was a small dent to offset the amount of Western assets that Venezuela nationalized without compensation. 3. For years before the US responded, Venezuela nationalized foreign investment in its oil industry, gold mining, agriculture, telecomm, banking, auto manufacturing, paper products, Satellite communication, pharmaceuticals, and many other industries - most seized without compensation. Prior to the 2019 action, the US basically left foreign investors without recourse, as they had to file lawsuits in courts in order to try to obtain compensation. The value of the foreign assets seized by Venezuela far exceeds the value of Venezuelan foreign holdings seized in response. The real problem for Venezuela is the flight of human capital by those with skills. Venezuela lacks the skilled workers to operate the industries it has nationalized, which is part of the reason for the economic collapse - the other part being simply the usual effect of socialism on reducing productivity due to the breakdown of the price-system.

tastyfreeze 5y ago

Lebanon as well.

delabay 5y ago

You're forgetting Lebanon

roperzh 5y ago

You can safely add Argentina to the list

JanisL 5y ago

In the modern world we primarily have banking systems that are based on fractional reserve banking and currencies without any explicit backing. This means that from a forex point of view the currencies are only worth as much as there is confidence in them. (National currencies often derive power in a practical sense due to taxes having to be paid in those currencies even without any explicit backing of the currencies value). Because of these dynamics if everyone were to try to withdraw their money from the bank at the same time there would be a major problem because the banks don't have the money to cover it. An event that makes people in a country all want to withdraw their money will cause a crisis just about everywhere at the moment. Sure you'll get people from the central bank saying they can create enough money to pay everyone out, which they can pretty easily do due to the fact that most money now is just entries in a database. But the problem in all modern banking crisis situations isn't so much the act of giving people money its what you can buy with that money. (A caveat, when things get really bad like they did in Venezuela the currency degraded so much that the government had problems paying for the printing and transport of new banknotes with even more zeros, but that's a rather exceptional case that occurred very late in a crisis, again the money was buying less) Banking crisis conditions can come about for a variety of different reasons but they all involve some lack of confidence in the ability to be able to exchange money for goods at a later point in time. This can come about because people aren't able to access their money in the banks (Eg Cyprus crisis) or because the value of the money is rapidly deteriorating (Eg Yugoslavian Hyperinflation) or because there's some event that devalues the currency. This is by no means an exhaustive list, but it shows that different things in different places can cause crisis situations to emerge. There's some interesting work that was done by the Bank of International Settlements about the early warning indicators for systemic banking crises. Seeing what was happening in Turkey inspired me to write about bank bail ins. Along with bail outs this is something that you'll likely see in banking crises. More detail about the early warning indicators and bail in mechanisms here: https://www.lesinskis.com/bank-bail-ins.html https://www.lesinskis.com/bank-bail-ins.html I also talk about this in the article but I don't think it's easy to neatly determine where currency crisis situations "start". There's at least 14 countries in the world that are in what could be the early stages of a banking and currency crisis but it's likely that people will only say they are in a crisis at a much later stage where the problems are so big they are impossible to ignore. Other places like Canada get ignored routinely but the situation there could rather easily turn into a major crisis unless something changes there.

mrighele 5y ago

> What are they doing that’s so different from everyone else? Erdogan thinks that high interest rates causes higher inflation, while it is generally agreed that it's the other way around, so every time that he speaks in public and says that the rates will fall (the Central Bank is nominally independent, but in practice will do what he wants) or the CB follow on his promise, the markets react accordingly. The last crash was one of such cases. I think the official rates are about 15%, with an official inflation of 19% (in practice it's at least double, so much that when the government announced new prices for a number of taxes and fines, they were increased by more that 35%), and a Lira that lost half of its value in a years, who is going to buy Turkish currency ?

colechristensen 5y ago

You don't get runaway inflation if the value of your imports is somewhere in the neighborhood of the value of your exports (a fairly large imbalance is fine). You do get runaway inflation when your import needs far exceed your export ability, you print money but prices rise continually faster than you print, regardless of how fast you print.