Currency crises are nothing new in Turkey; in 2005, the old lira was so weak that you could become a millionaire by changing 40p
The Turkish currency is continuing to slide – losing value in early trading on Wednesday as financial markets reacted to the government’s interest rate moves.
In the past three years the Turkish lira has lost 70 per cent of its value against sterling, dropping from around five to the pound to 17.
Turkey was taken off the UK’s “red list” in October, spurring a surge in visitors. But what are the implications of the devaluation for British travellers?
What’s the situation for travellers in Turkey right now?
The financial markets are unimpressed by the eccentric behaviour of President Erdogan, who has declared an “economic war of independence” and is cutting interest rates rather than raising them – leading to a widespread sell-off of the Turkish lira.
Anyone who is changing money “little and often” will find that they are suddenly much wealthier, with bureaux de change offering far better rates than last week. While the slump will spur inflation, prices are not yet rising in response to the collapse.
When will prices start to rise?
Traders (and consumers) have become accustomed to prices increasing regularly as the Turkish lira slides. Higher import costs will take time to feed through. For bigger-ticket tourism items, such as accommodation, prices are likely to be quoted in euros – the hard currency preferred by Turkish businesses.
I am travelling to Turkey. How do I organise my finances?
Do not change your money for Turkish lira in the UK. While the Post Office is offering a decent rate of 15.9 to £1, the currency is likely to deteriorate still further before you travel.
Instead take clean sterling notes and shop around for the best deal when you are there. Change little and often: partly because the rate could improve still further against sterling by the day, and partly because you do not want to be stuck with Turkish currency at the end your trip.
You will certainly get a worse exchange rate changing money back at the airport than you did when you originally obtained the lira.
Does the currency crisis signal a risk of wider unrest?
Currency crises are nothing new in Turkey; in 2005, the old Turkish lira was so weak that you could become a millionaire by changing 40p, until six zeroes were knocked off the lira and a “new lira” was launched.
Protests in the biggest city, Istanbul, and the capital, Ankara, may intensify. The Foreign Office warns: “Sporadic demonstrations take place in cities across Turkey, some of which have, in the past, become violent.
“In Istanbul previous demonstrations have centred on the area around Taksim Square and on Istiklal Street. In Ankara, the protests have mainly taken place in the central Kizilay district around the Turkish Parliament.
“In Izmir the focus has been in the town centre, near the waterfront.”
I’m going to Turkey next year. Should I buy now to take advantage of the currency slump?
You could lock into the lira in the hope it will appreciate in value, but you will be taking a gamble – with a strong risk that you will lose heavily on the bet.
I am not planning to buy any Turkish lira until I am actually in Turkey and need some.
With prevailing inflation rates and no sign of any change to the president’s behaviour, I predict its value is going only one way: down.
Will holidays in Turkey be cheaper next year?
Big holiday companies such as Tui and Jet2 have already negotiated deals in Turkey, with payments mainly in euros, so substantial changes in the prices of package holidays are unlikely.
Spending money may go further, if inflation lags behind the depreciation.