Turkey’s floating exchange rate is more effective than the fixed exchange rate, claims World Bank Turkey Director Andrew Vorkink, suggesting that it is a system that should be continued.
Finance Minister Ali Babacan and the Bank of Turkey believe an exchange rate policy is like a valve against crises for international organizations and have decided to continue with the floating exchange rate.
Vorkink acknowledged many economic problems, as well as the fixed exchange rates, caused the 2001 economic crisis in Turkey, forcing the country to make a crucial decision and adopt a floating exchange rate.
The floating exchange rate has created a favorable condition for competition Vorkink defended, and it paved a convenient way for Turkey to compete in global markets with China and the European Union in particular.
The World Bank's Turkey Director listed the advantages of the floating exchange rate as:
"Its main advantages for Turkey in the last five years are low interest rates and inflation. It is true that a floating exchange rate resulted in extreme value and something can be done about it; however, this can cause Turkey to once again face the problems experienced in the past. In my opinion, a floating exchange rate is more effective than a fixed exchange rate and it is a system that should be carried on."
When the Justice and Development Party came to power, the dollar fell from 1.6 new Turkish liras (YTL) to YTL 1.3. In the past, the Central Bank would "intervene" to stop fluctuations in the exchange rate, but now it purchases foreign currency to avoid "drops" due to "extreme fluctuations."
Exporters complain about significant advantage losses in foreign trade due to continuous drops in the exchange rates. It is "more appropriate" to allow the market to determine the value of the exchange rate, Vorkink said. A floating exchange rate, he added, will not cause over valuation of the Turkish monetary unit in the short run.
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