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Turkey (accidently) builds a case for Bitcoin by planning to convert citizens’ gold to lira

In its newest strategy to prop up the value of its national currency, the lira, the Turkish government is working on measures to encourage residents to hand in “under the mattress” gold. However, some argue that the country would have been far better off if it had simply adopted bitcoin (BTC).

The Turkish government has already established partnerships with five gold refineries to assist transform gold jewellery handed in by residents into gold bullion that would be added to the central bank’s reserves, according to a Financial Times report published this week.

The refinery agreements are in addition to a partnership with over 30,000 gold shops, which Turkey’s finance minister, Nureddin Nebati, claimed would play a vital role in the project. That’s according to unnamed people who were present at a meeting with overseas investors in London this week, according to a Financial Times report.

According to the same sources, the finance minister stated that the government hopes to hand up 10% of the estimated USD 250 billion in private gold held by Turks as part of the scheme.

The initiative was also briefly outlined in a December news statement from the Turkish central bank, which stated that it aims to “promote financial stability.”

Commenting on the Turkish plan to convert citizens’ gold into lira, George Kikvadze, co-founder of blockchain infrastructure provider Bitfury, said on Twitter that it would have been “much smarter” for the Turkish government to instead embrace bitcoin.

If Turkey had embraced BTC, “its citizens and Central Bank would have been sitting on tens of billions in assets now,” Kikvadze added.

Despite the government’s reservations, Turkish citizens have embraced bitcoin in unprecedented numbers, according to multiple sources.

For example, prominent media publications like The Wall Street Journal have written on how Turks are “piling into” bitcoin and stablecoins like tether (USDT) to avoid the lira’s depreciation. Meanwhile, crypto exchange offices and accompanying advertisements can now be seen “all over the city,” according to a video report for the same publication from Istanbul, Turkey’s largest city.

Following El Salvador’s pro-bitcoin President Nayib Bukele’s January visit to Turkish President Recep Erdoan, reports of Turkey’s latest intention to bolster the lira by obtaining people’ gold has surfaced. “First and foremost, welcome from El Salvador, the country of Bitcoin, to everyone of Turkey,” Bukele tweeted ahead of the state visit.

Some in the bitcoin community hoped that Erdogan might be motivated to follow El Salvador’s lead in adopting bitcoin, but no bitcoin-related news has surfaced from the meeting so far.

The troubled lira and the crypto bill

President Erdogan announced during a news conference in December of last year that the government had completed the country’s first crypto bill and that it was ready to be delivered to parliament for formal approval.

Given the President’s past pronouncements that he has “absolutely no intention of adopting cryptocurrencies” and that the country is in a “war and struggle against them,” it is unclear whether the measure is good or bad news for crypto users in the country.

Last year, Turkey’s currency lost 44% of its value versus the US dollar, but it has steadied this year as the government implemented additional measures to stop the currency’s depreciation. The government has promised to compensate banks for losses in lira deposits if the value of the currency falls below the bank’s interest rate versus ‘hard currencies’ such as the US dollar.

US dollar to Turkish lira exchange rate since 2021:

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The decision was regarded as “quite substantial” by Goldman Sachs analysts, while it is still “unlikely to structurally stabilise inflation or the exchange rate,” according to CNBC.

While the steps appeared to have stabilised the lira’s exchange rate against the dollar, Turkey’s inflation remains high, with a rate of 48.7% in January.

“What happens next will shed light on the government’s unconventional interest-rate approach: Will goods availability increase or inflationary expectations worsen,” Mohamed El-Erian, the President of Queens’ College at Cambridge University, asked his followers on Twitter after the release of the shocking inflation figure.

For the time being, it is uncertain whether Turkey will maintain its previously antagonistic posture toward bitcoin and other cryptoassets, or whether it will change its mind. What is apparent, however, is that Turkish citizens have already discovered bitcoin, and it is becoming increasingly impossible to prevent them from storing their wealth in it.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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