The three main drivers behind the depreciation of the Turkish Lira: policies, inflation, and risk analysis

The Turkish lira has been under long-term depreciation pressure, and this is no coincidence. Over the past decade, the lira’s decline has been driven by a combination of high inflation, policy swings, geopolitical uncertainties, and other factors, forming an “irreversible depreciation channel.” For investors and currency exchange needs seeking to understand this currency trend, grasping the reasons behind the lira’s depreciation is the first step toward making informed decisions.

As an emerging market currency, the Turkish lira (TRY) has relatively low liquidity within the global financial system. Its exchange rate is highly influenced by political developments, interest rate policies, inflation, and geopolitical risks. This article will analyze the historical background, current situation, and practical investment insights to unravel the mystery of the lira’s depreciation.

From History to Today: Why Has the Lira Been in a Long-Term Depreciation Trap?

To understand the current plight of the lira, we must look back at its turbulent history. At the end of 2001, the Turkish lira faced its most severe financial crisis due to hyperinflation, with the USD/TRY exchange rate soaring to 1,650,000:1. To stabilize the currency system, Turkey implemented major reforms in 2005, introducing a “new currency”—exchanging 1 new lira for 100,000 old lira, effectively a massive “reset.”

In 2009, Turkey rebranded the currency, and from 2010 onward, it officially adopted the name “Turkish Lira,” with old banknotes phased out. This history reveals a harsh truth: The depreciation of the lira is not just short-term volatility but the result of long-term structural issues accumulated over time.

The official code for the lira is TRY, with the subunit “Kuruş,” where 1 lira = 100 kuruş. It is issued and managed by the Central Bank of the Republic of Turkey (CBRT). Despite multiple reforms, the lira has yet to escape cyclical depreciation.

2025 Exchange Rate Volatility: A Review and Lessons

Entering 2025, the Turkish lira’s performance remains disappointing. At the start of the year, USD/TRY hovered around 35–36, but due to political turmoil, high inflation, and doubts about policy credibility, the lira weakened to over 40 by mid-year, with a total decline of over 20% for the year.

Particularly, the arrest of Istanbul’s mayor in March triggered market panic, leading investors to sell lira assets en masse. This event exposed the market’s excessive sensitivity to Turkey’s political risks—any political upheaval can cause exchange rate swings.

Although the CBRT attempted to stabilize the lira through interest rate hikes and other measures, deep-rooted inflation and structural problems persisted, keeping the lira in a high-level depreciation channel. From a currency exchange perspective, Taiwanese investors who exchanged currency at the beginning versus the end of the year could see a difference of over 10% in the amount of lira obtained—such volatility poses significant risks for travelers and others with actual currency needs.

In-Depth Analysis of the Lira’s Depreciation Causes: Economic Structure and Policy Crisis

Vicious Cycle of High Inflation and Policy Distrust

The core reason for the persistent weakness of the lira is a deadly combination: high inflation + low policy credibility. In recent years, the Turkish government has implemented unconventional monetary policies—such as cutting interest rates amid soaring prices—completely undermining market confidence in the independence of the central bank.

The direct result: capital flight accelerates, businesses and individuals sell off lira holdings and buy dollars and euros. Economists call this “capital outflow”; layman’s terms, “nobody wants the lira.” As holdings of lira decrease, its value drops further, creating a vicious cycle that is hard to break.

Import Dependence and Inflation Spiral

Turkey’s economic structure has a critical weakness: high reliance on imports. Key commodities like energy, raw materials, and industrial goods must be paid for in dollars. When the lira depreciates, import costs rise, increasing business expenses, which are then passed on to consumer prices, fueling inflation. As consumers lose confidence and seek safer assets like dollars, the lira depreciates even more.

This cycle explains why inflation in Turkey is so hard to control: depreciation → higher import costs → inflation → loss of confidence → further depreciation. Breaking this cycle requires deep structural reforms, not just short-term policy tweaks.

Geopolitical Risks and Political Uncertainty

Beyond economic factors, geopolitical risks also play a role. Recent years have seen local elections, policy shifts, and international tensions, leading foreign investors to adopt a more cautious stance toward Turkish assets. Any political news can trigger capital outflows, prompting investors to reduce exposure to emerging markets like Turkey.

Currency Exchange and Investment: Practical Advice After Understanding the Risks

Currency Exchange Channels and Practical Tips in Taiwan

For those with actual needs (e.g., traveling to Turkey), understanding exchange channels is crucial:

Bank Exchange is the most transparent option. Banks like Bank of Taiwan, Mega International, Hua Nan, CITIC, Cathay United, and Taishin can arrange for TRY cash exchanges. Advantages include transparent fees and low risk; disadvantages are that cash availability may take 1–3 working days, and TRY is not a common currency, so some branches may not have cash on hand—call ahead to confirm.

Airport Exchange may seem convenient but carries risks. Currency booths at Taoyuan and Kaohsiung airports offer quick service, but rates are often worse than banks, and fees are higher—ultimately, you pay more than necessary.

Local Usage Tips: Use a mix of cash and card. Small purchases (coffee, bus fare) are best with cash; larger expenses (shopping, accommodation) are safer with credit/debit cards. Coins are very useful locally for bus fares, tips, and small purchases. For example, a coffee costs about 15–25 TRY; a local meal about 50–100 TRY. Plan your budget accordingly.

Pitfall Warnings

Street exchange booths may advertise “zero fees,” but the exchange rate often includes a hidden 10–20% margin—it’s a game of nominal figures. When exchanging cash, check the bills for authenticity; counterfeit bills are rare but possible. Tipping culture typically involves about 10%; when paying in cash, round up to the nearest convenient amount (e.g., pay 100 TRY for an 85 TRY bill).

Currency Trading Tools: Find the Right Method for You

For investors with trading intentions, choosing the right instrument is key. The three main options each have pros and cons:

Bank/Exchange Office

This is the most basic method. While many Taiwanese banks offer foreign currency accounts, TRY is not a common currency, and most banks do not provide direct buying/selling of TRY. To hold TRY physically, you may need special currency orders or overseas accounts, which have higher barriers. The advantage is low leverage and controlled risk; the downside is large spreads and low liquidity, making profits from appreciation difficult.

Futures Contracts

CME offers USD/TRY futures (symbol 6M), with a standard contract value of 100,000 TRY. In theory, futures allow two-way trading, leverage, and long trading hours. However, trading volume is very low, liquidity is poor, and most brokers do not offer access to retail investors—making actual trading difficult.

CFDs (Contracts for Difference)

CFDs are currently the most practical way to bet on the decline of the TRY or participate in exchange rate movements. You can trade the USD/TRY pair with flexibility and speed. Benefits include: low minimums—as little as 0.01 lot; 24-hour trading—long hours for both buying and selling; multiple options—including cross pairs like EUR/TRY or TRY/JPY.

Compared to the other two, CFDs offer advantages such as online account opening, multiple currency pairs, low entry thresholds (~50 USD), and leverage up to 300:1. For small to medium investors, CFDs provide a balanced risk-reward profile.

Data-Driven Outlook: Key Clues for the Lira’s Future

Major Currency Pair Trends

USD/TRY: Since early 2025, the dollar has been strengthening against the lira, with expectations that aggressive rate cuts by the CBRT could trigger another depreciation wave. Short-term, the USD remains dominant, with a psychological support level around 10.5.

EUR/TRY: Follows the euro’s overall trend. If the euro rallies, the lira faces more depreciation pressure; if European economic conditions weaken, the decline may slow.

TRY/TWD: Currently around 0.23–0.24 (1 TRY ≈ 0.235 TWD). During peak travel seasons like Lunar New Year, demand for exchange may push rates higher temporarily, but long-term trends still follow the USD. Travelers should consider staggered exchanges to mitigate risk.

Monitoring Key Signals

The CBRT’s interest rate decisions are short-term indicators. Inflation data also reflect policy effectiveness—if inflation remains high, market doubts about the central bank’s credibility will persist, pushing the lira lower. The Istanbul Stock Exchange’s banking index is also worth watching—if it drops more than 5%, it often signals accelerated foreign capital withdrawal, warning of rapid lira depreciation.

Summary

The story of the Turkish lira’s depreciation is fundamentally a story of structural imbalance. High inflation, low policy credibility, heavy import dependence, and geopolitical risks intertwine to create an unstoppable downward trend. Despite efforts by the CBRT to reform, reversing the long-term decline remains challenging in the short term.

For investors, while the lira’s trend is clear and the catalysts for change identifiable, it is not a safe-haven asset. Those participating in TRY trading should assess their risk tolerance and investment goals carefully, choosing suitable instruments and timing. Short-term traders may profit from volatility, while long-term holders should proceed cautiously.

Most importantly: Understanding the reasons behind the lira’s depreciation and recognizing the inherent risks are the foundations of wise decision-making.