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Pètra van de Gevel, EUCOM Team; Sara Kulic, Illicit Finance and Economic Threats Team; Akshat Sharma, CENTCOM Team

Week of Monday, January 3, 2022

Turkish Lira on Turkish Flag[1]

Throughout 2021, the Turkish lira plunged 42 percent against the US dollar (USD), becoming “one of the world's worst-performing currencies.”[2] The currency crash has been driven by the Erdoğan Administration’s monetary policies to achieve economic growth and strengthen Turkey’s independence from other countries, including cutting interest rates.[3] The currency crash led to annual consumer inflation of 36.1 percent for December 2021, the highest since President Recep Tayyip Erdoğan came to power, with electricity prices increasing 50-125 percent and natural gas increasing 25-50 percent.[4] Economists predict that if the Erdoğan Administration does not reverse Turkey’s monetary policy, inflation will very likely become as high as 50 percent by the end of 2022’s first quarter.[5] If high inflation rates persist, poverty rates in Turkey will very likely increase. The Turkish lira’s inflation will very likely lead to demonstrations by Turkish trade unions and workers. Any crackdown on such protests by Turkish security forces will likely trigger violent clashes and raise security concerns. Turkey’s economic situation will very likely decrease President Erdoğan’s popularity among the Turkish population, likely resulting in the Erdoğan Administration trying to shift the attention away from the economy through foreign policy.

The Erdoğan Administration’s persistence in lowering interest rates, instead of increasing them due to inflation, will very likely prevent or stall future foreign direct investments (FDI) in the country and cause the retreat of current ones.[6] The lack of FDI will likely significantly harm the economy, as the country is one of the most popular investment destinations, with around $225 billion USD of FDI from 2003-2020.[7]​ Turkey’s economic and technological development will likely be negatively impacted. The lack of FDI will likely reduce job opportunities for the Turkish population, increasing unemployment. Due to economic instability, the country is unlikely to provide sufficient economic support for the unemployed, likely resulting in international migration of both high-skilled and low-skilled workers. Most Turks will very likely migrate towards European countries with a large Turkish diaspora and/or shortage of workforce. The workforce outflow will likely lead Turkey to grant working visas to foreign refugees once the economy recovers. There is a roughly even chance that the influx of Turkish nationals towards the EU will negatively impact EU-Turkey relations and their migrant agreement.

President Erdoğan called on Turks to support the economy by using the lira in business transactions and savings, and putting their gold savings into the national banking system.[8] Due to the increasing economic instability and financial uncertainty, this is unlikely to occur. Businesses and individuals will likely resort to using more stable foreign currencies, like the euro or US dollar, to prevent losses in transactions and savings. Despite the aim to decrease Turkey’s financial dependence and prevent the use of foreign currency, the economic instability will likely increase the need for foreign cash aid interventions. The influx of foreign cash-based aid will likely be deterred by the Financial Action Task Force (FATF) “greylisting” Turkey for deficiencies in its regimes to counter money laundering, terrorist financing, and proliferation financing.[9] Greylisting refers to the FATF placing a country under increased monitoring to address the mentioned deficiencies.[10] If Turkey remains greylisted, future FDI will likely be further deterred, even after Turkish economic recovery. Remittances sent by Turks working abroad will very likely increase, increasing the overall cash flow towards Turkey. However, anti-money laundering and counter-terrorism financing procedures in other countries will very likely delay such transactions, deepening the population’s economic deprivation.

Despite the FATF greylisting and the currency crisis, Turkey and the United Arab Emirates (UAE) signed accords for billions of dollars of investments in November 2021.[11] There is a roughly even chance the UAE investments will mitigate the economic hardship and unemployment caused by the Turkish currency crisis, considering the unknown time frame for the realization of the investment projects. In December 2021, both countries expressed their aim to strengthen “economic and commercial relations.”[12] The UAE’s reputation as an illicit financing hub and its potential FATF greylisting means cooperation between these countries will likely increase the FATF’s monitoring and prolong their greylisting.[13] Increasing cooperation between greylisted countries will also likely stall their efforts to comply with FATF rules, increasing illicit financial flows in both countries. Turkey’s and the UAE’s non-compliance will almost certainly undermine global anti-money laundering and counter-terrorism financing efforts if they persist as illicit financing hubs. Such a development will likely isolate the Turkish economy from the West, including from the US and the EU. Consequently, Turkey-UAE bilateral relations would almost certainly strengthen, likely impacting further cooperation and partnerships between Turkey and the Gulf States.

The Turkish lira’s inflation will very likely affect the Turkish population as their purchasing power will almost certainly decrease. As consumer goods’ prices soar and wage incomes decrease, Turkey’s population will very likely struggle to purchase necessities, such as food and energy. This will almost certainly have a greater negative impact on lower-income households. Mental health issues will likely arise as many individuals will likely be unable to provide for their families. Loss of savings due to the lira’s decreased value will likely push more civilians into poverty. Vulnerable civilians will very likely rely on loans due to low-interest rates in central banks. This will likely create a false sense of security, as no change in the current economic policy will almost certainly lead to long-term financial strain, likely leading families into debt traps due to non-repayment of their loans.

Turkey recorded improvement in economic growth and exports in October-December 2021 compared to the same period in 2020, but its benefits are likely to be eroded by increasing inflation and will likely not improve current living standards for Turkish citizens.[14] This will also likely affect economic growth from January 2022 to March 2022, the fourth quarter of the 2021-22 fiscal year. Firms will likely experience investment and funding losses, leading to delayed wages for employees. Some workers will likely leave voluntarily due to delays in payment or a lack of wages. Consequently, Turkish production capabilities will likely be reduced, negatively impacting exports and economic growth.

To offset living costs, President Erdoğan stated the minimum wage would increase by 50 percent in 2022, and income and stamp tax would not apply to people earning minimum wage.[15] This increase will likely cause many companies struggling with the currency crisis to go bankrupt as it is unlikely they will be able to cover a 50 percent wage growth. The employment rate will almost certainly be affected, likely increasing discontent towards the Turkish government. The youth unemployment rate in Turkey in the third quarter of 2021 was approximately 23 percent.[16] Since businesses in Turkey are struggling due to the lira inflation, job opportunities for those in the 18-25 age group will very likely remain scarce. If Turkey’s economic crisis does not improve, President Erdoğan's popularity among this demographic will almost certainly be low. This will likely affect the outcome of the 2023 national elections since many young Turks will be eligible to vote for the first time.

Polls show Turkish opposition parties are gaining ground against President Erdoğan.[17] The dip in the Turkish lira triggered marches and protests by civilians to indicate their dissatisfaction with the currency’s current state.[18] Rising consumer prices will almost certainly harm President Erdoğan’s chances of reelection during Turkey’s 2023 national elections. There is a roughly even chance the Erdoğan Administration will call for early elections to extend the presidency before opposition parties gain more ground. Opposition parties will very likely capitalize on the current situation by trying to sway voters, particularly in the regions most affected by currency inflation, by suggesting that the Erdoğan Administration is creating a currency crisis purposefully. The Erdoğan Administration will very likely try to stop opposition parties, such as the Republican People's Party (CHP), from gaining more support. The Erdoğan Administration will very likely increase its hostility towards opposition parties by suspending, detaining, and arresting key figures of these parties. On March 15, 2014, Erdoğan accused the CHP of siding with the Revolutionary People’s Party/Front (DHKP-C), a terrorist group that claimed responsibility for the killing of a 22-year-old man.[19] This indicates the Erdoğan Administration will very likely try to stigmatize opposition parties by accusing them of having links with organized crime groups and criminal or terrorist activity.

The Erdoğan Administration will also likely censor or shut down media platforms to prevent criticism from being shared. Censorship will very likely create frustration within the Turkish population. The Erdoğan Administration will likely authorize security forces to arrest those critical of the government, as occurred in 2016 after the failed coup attempt.[20] The Turkish government will very likely state that arrests must be made to maintain public safety and order. However, a continued currency dip will likely lead to further demonstrations by trade unions and workers. Any crackdown on such protests by government forces could likely trigger violent clashes and raise security concerns.

On December 27, 2021, Turkey’s Banking Regulation and Supervision Agency announced it was filing a complaint against more than 20 people for allegedly manipulating the country's exchange rate through social media posts and media outlets.[21] The complaint is almost certainly an attempt to silence any criticism of the Erdoğan Administration's economic policies. It is also likely indicative of the government's future strategy to deal with journalists reporting on economic trends and social media users who oppose the government. Critics will likely be accused of damaging the country's economy and the financial system. If the economic crisis worsens, the government will almost certainly increase its censoring of social media platforms and media outlets to maintain control of the information being shared in the country.

The Erdoğan Administration will very likely try to draw attention away from Turkey’s economic situation through foreign policy, as seen by his order on October 24, 2021 to expel 10 Western ambassadors.[22] The US and European countries are likely to be affected by Turkey’s foreign policy, deepening the rift between Turkey and other members of the North Atlantic Treaty Organization (NATO). This will likely cause skepticism in the West towards Turkey’s reliability as a security partner and its NATO membership, very likely increasing calls for Turkey to leave or be expelled from NATO. This will almost certainly make Turkey more diplomatically isolated. In 2020, Turkey purchased the Russian-made S400 missile defense system, and in September 2021, President Erdoğan stated that Turkey intended to buy a second batch.[23] This very likely increases security risks for NATO systems. If this acquisition occurs, the US will almost certainly increase its diplomatic pressure and impose economic sanctions and penalties, which will likely result in deteriorating relations between Turkey and the US. This will likely be politically exploited by the Erdoğan Administration, particularly to justify its more assertive foreign policy, divert attention away from the currency crisis, and satisfy the government’s nationalist base.

To address financial instability, the Counterterrorism Group (CTG) recommends the Turkish government implement a contractionary policy, reducing the money supply within the Turkish economy by decreasing bond prices and increasing interest rates.[24] This will likely reduce spending as there will be less money supply and, in turn, reduce inflation. The Erdoğan Administration should increase its efforts to fight money laundering and terrorism financing so that the FATF removes Turkey from its grey list, as this will likely encourage future FDI. A more stable currency and economy will almost certainly diminish social discontent in Turkey. CTG recommends the Turkish government decrease censorship of information and increase transparency, as it will likely increase trust among the Turkish population towards government institutions and diminish social unrest.

The EUCOM, Illicit Finance and Economic Threats (IFET), and CENTCOM Teams will continue to monitor the Turkish currency crisis and resulting economic instability. Through collaboration and utilization of Open Source Intelligence (OSINT), the IFET, EUCOM, and CENTCOM Teams will analyze economic, social, and political impacts and provide recommendations to essential stakeholders. Collaboration with other CTG Teams will ensure a comprehensive analysis of future developments and their connection to the currency crisis. The CTG’s Worldwide Analysis of Threats, Crime, and Hazards (W.A.T.C.H.) Officers will continue to track the latest events in Turkey to provide current and fact-based analysis.

The Counterterrorism Group (CTG) is a subdivision of the global consulting firm Paladin 7. CTG has a developed business acumen that proactively identifies and counteracts the threat of terrorism through intelligence and investigative products. Business development resources can now be accessed via the Counter Threat Center (CTC), emerging Fall 2021. The CTG produces W.A.T.C.H resources using daily threat intelligence, also designed to complement CTG specialty reports which utilize analytical and scenario-based planning. Innovation must accommodate political, financial, and cyber threats to maintain a level of business continuity, regardless of unplanned incidents that may take critical systems offline. To find out more about our products and services visit us at


[2] Why is the Turkish lira crashing and what impact is the currency crisis having in Turkey?, EuroNews, December 2021,

[3] Turkey’s Currency Crisis: Inflation Soars To 19-Year High As Lira Slump Continues, Forbes, January 2022,

[4] Turkey hikes energy prices; Istanbul monthly inflation highest in decade, Reuters, January 2022,

[5] Turkish lira faces a rocky new year as inflation hits 19-year high and could go higher, CNBC, January 2022,

[6] Turkey's inflation soars to 36%, setting a new record for Erdogan era, CNN, January 2022,

[7] FDI in Turkey, Presidency of the Republic of Turkey Investment Office,

[8] Erdogan calls on Turks to keep all savings in lira, Reuters, December 2021,

[11] Turkey, UAE sign investment accords worth billions of dollars, Reuters, November 2021,

[12] Turkey, UAE say they want deeper cooperation, trade after Dubai talks, Reuters, December 2021,

[13] Dubai’s position as financial capital of the Middle East at risk as FATF considers ‘grey listing’ UAE over AML concerns, AML Intelligence, January 2022,

[14] Why is Turkey’s lira crashing and will currency crisis worsen?, Al Jazeera, December 2021,

[15] Turkey Raises Minimum Wage Sharply to Offset Higher Prices, Bloomberg, December 2021,

[16] Turkey jobless rate climbs to 12% in July as supports end, Reuters, July 2021,

[17] Turkey’s Erdogan is losing support where he can least afford it, The Japan Times, December 2021,

[18] Thousands in poverty protest in Turkey as lira hits record lows, EuroNews, December 2021,

[19] Turkish PM accuses CHP siding with DHKP-C, World Bulletin, March 2014,

[20] 47,155 arrests: Turkey’s post-coup crackdown by the numbers, CNN, April 2017,

[21] Turkish regulator files criminal complaints over lira’s moves, Financial Times, December 2021,

[22] Erdogan's critics say expulsion call is diversion from economic woe, Reuters, October 2021,



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