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Maybe you can explain it to me like I'm five. I've been occasionally watching the Turkish Lira this past year. The rates against the USD are still sinking. Aga

Maybe you can explain it to me like I'm five. I've been occasionally watching the Turkish Lira this past year. The rates against the USD are still sinking. Against the EUR it's pretty stable. Yet allegedly they have something like 80-150% inflation in Turkey, while the EUR-zone has 10%. How does this work, why isn't the Lira becoming "worthless" with that amount of inflation?

incrudible 4y ago
One year ago, the Lira was worth twice as much in US dollars, which is in line with a 100% annual inflation rate.
dragonwriter 4y ago
Inflation in a particular country is about prices of consumer good innthqt country (usually measured in the official local currency.) Foreign exchange is about trading different currencies for each other. Because of shipping, transaction costs, import/export restrictions, and other deviations from the abstract ideal of a single frictionless global market, there is no necessary fixed relationship between consumer prices in Country X, the X:Y currency exchange rate, and consumer prices in Country Y.
smegsicle 4y ago
the expectation is that if people assume that kind of inflation will continue, they would convert their wealth to another currency/form of wealth, and vendors would also prefer these other currencies, which would drive the inflation even further, right? so i also wonder what they're doing to curb the spiral
- miohtama 4y ago
  Here is a BBC article what has been done in the past to stop hyperinflation: https://www.bbc.com/news/business-45523636 https://www.bbc.com/news/business-45523636 The problem is that Erdogan is not doing any of this. His controversial politics are taking Turkey further down in the pit. Because Turkey’s political system is somehow broken, it is not clear if any election can replace Erdogan.
  - revolutukr 4y ago
armchairhacker 4y ago
ELI5 is that governments can produce money out of thin air (paper), but can’t produce resources. So when they produce more money, each “dollar” of their currency becomes worth less - inflation. When governments produce a lot of money, their dollar becomes substantially less. This causes them to need to produce even more money (because money which used to be enough is no longer), creating a cycle and a desperate attempt to produce something out of nothing, where eventually what used to cost one dollar literally costs trillions of dollars - hyperinflation. Banks manage a lot of money, so if they go bankrupt the government needs to bail them out by printing a lot of money, causing massive inflation. And if the government needs to pay off foreign creditors (they do), and tries to address the resulting poverty caused by the inflation, it leads to printing more money and hyperinflation. EDIT: Relating to the Turkish Lira and why that isn’t hyperinflating: I don’t know where exactly the line is where “high inflation” triggers the cycle and becomes hyperinflation. I suppose they still have resources, so their currency still has some worth. Just, either they don’t have as many resources as before, or the government is printing money which it spends on itself in order to drain money from the average person without explicit taxation.
berdario 4y ago
Inflation is measured ex post facto. TRY against EUR has been pretty stable from January, but the August 2022 rate compares the difference from August 2021. It's not cumulative every month. If TRY against EUR will stay stable until January 2023, I expect that we will talk about TRY having roughly the same inflation as EUR.
revolutukr 4y ago

incrudible 4y ago

One year ago, the Lira was worth twice as much in US dollars, which is in line with a 100% annual inflation rate.

dragonwriter 4y ago

Inflation in a particular country is about prices of consumer good innthqt country (usually measured in the official local currency.) Foreign exchange is about trading different currencies for each other. Because of shipping, transaction costs, import/export restrictions, and other deviations from the abstract ideal of a single frictionless global market, there is no necessary fixed relationship between consumer prices in Country X, the X:Y currency exchange rate, and consumer prices in Country Y.

smegsicle 4y ago

the expectation is that if people assume that kind of inflation will continue, they would convert their wealth to another currency/form of wealth, and vendors would also prefer these other currencies, which would drive the inflation even further, right? so i also wonder what they're doing to curb the spiral

miohtama 4y ago
Here is a BBC article what has been done in the past to stop hyperinflation: https://www.bbc.com/news/business-45523636 https://www.bbc.com/news/business-45523636 The problem is that Erdogan is not doing any of this. His controversial politics are taking Turkey further down in the pit. Because Turkey’s political system is somehow broken, it is not clear if any election can replace Erdogan.
- revolutukr 4y ago

armchairhacker 4y ago

ELI5 is that governments can produce money out of thin air (paper), but can’t produce resources. So when they produce more money, each “dollar” of their currency becomes worth less - inflation. When governments produce a lot of money, their dollar becomes substantially less. This causes them to need to produce even more money (because money which used to be enough is no longer), creating a cycle and a desperate attempt to produce something out of nothing, where eventually what used to cost one dollar literally costs trillions of dollars - hyperinflation. Banks manage a lot of money, so if they go bankrupt the government needs to bail them out by printing a lot of money, causing massive inflation. And if the government needs to pay off foreign creditors (they do), and tries to address the resulting poverty caused by the inflation, it leads to printing more money and hyperinflation. EDIT: Relating to the Turkish Lira and why that isn’t hyperinflating: I don’t know where exactly the line is where “high inflation” triggers the cycle and becomes hyperinflation. I suppose they still have resources, so their currency still has some worth. Just, either they don’t have as many resources as before, or the government is printing money which it spends on itself in order to drain money from the average person without explicit taxation.

berdario 4y ago

Inflation is measured ex post facto. TRY against EUR has been pretty stable from January, but the August 2022 rate compares the difference from August 2021. It's not cumulative every month. If TRY against EUR will stay stable until January 2023, I expect that we will talk about TRY having roughly the same inflation as EUR.

revolutukr 4y ago