There's something almost poetic about watching a currency collapse in slow motion. I've covered financial markets for years, and certain disasters unfold with such predictable rhythm that you could practically set your watch to them.
Turkey's recent economic nightmare? Classic case of political hubris meeting economic reality—and reality winning by knockout.
President Recep Tayyip Erdogan has spent the better part of a decade promoting an economic theory that makes actual economists want to tear their hair out: the bizarre notion that high interest rates cause inflation, not fight it. It's roughly equivalent to claiming that water flows uphill or that gravity is just a state of mind.
And the results? Well... they're exactly what you'd expect.
The Turkish lira has absolutely cratered—dropping nearly 80% against the dollar since 2018. Inflation? It shot up to a eye-watering 85% last year. These aren't just numbers on a page; they represent real human suffering as savings evaporate and basic necessities become luxury items.
Look, there's a reason most functioning economies separate political leadership from monetary policy. Politicians and central bankers operate on fundamentally different timelines. The politician thinks, "How do I make voters happy before the next election?" The central banker asks, "How do we maintain stability for the next generation?"
(That tension, by the way, is precisely why central bank independence became the gold standard for monetary governance in the first place.)
What makes Turkey's situation particularly tragic is that the country had been doing relatively well. Before Erdogan's monetary experiments, Turkey was considered something of a rising star among emerging markets—decent growth, expanding middle class, strategic location. All the ingredients were there.
Then politics happened.
I spoke with several Turkish small business owners during a reporting trip to Istanbul last spring. One shop owner—I'll call him Mehmet—told me his entire business strategy now revolves around converting lira to dollars as quickly as possible. "Every day I wait, my money gets smaller," he said, gesturing to the currency exchange rate board visible through his shop window.
This isn't some obscure economic debate. It's kitchen-table economics in its most painful form.
The most frustrating part? This was entirely preventable.
Economists have understood the importance of central bank independence since the 1970s, when countries around the world learned—painfully—that letting politicians control monetary policy inevitably leads to inflation. The temptation to juice the economy before elections is simply too great. It's human nature combined with political incentives, a dangerous cocktail.
Turkey now joins a depressing roster of countries—Argentina, Venezuela, Zimbabwe—where political leaders decided they knew better than economic orthodoxy. The results speak for themselves.
Having tracked Erdogan's economic policies since he began seriously interfering with the central bank in 2018, I've watched each new central bank governor arrive with promises of independence, only to be replaced when they wouldn't toe the political line. It's been a revolving door of financial leadership—five central bank governors in less than three years at one point!
The cruel irony? Erdogan eventually had to allow interest rates to rise anyway—now sitting at a painful 50%—after incalculable damage had already been done. Sometimes reality can only be denied for so long.
For investors and policy wonks alike, Turkey offers a stark reminder: when evaluating an economy, central bank independence isn't just a nice feature—it's fundamental. You can have all the natural resources, strategic location, and demographic advantages in the world, but if monetary policy becomes a political football, none of that matters.
Because at its heart, a currency is built on trust. And once that trust evaporates, all you're left with is colorful paper and broken promises.
Just ask anyone trying to save for retirement in lira right now.
