Trade wars, sanctions, fear from private and decentralized cryptocurrencies. Regardless of the motive, a number of governments have recently taken the path of creating their own digital money. Turkey has become the latest country to announce plans for the issue of a “blockchain-based” national currency.
Digital Lira to Be Tested as Ankara Builds Fintech Ecosystem
The project to develop a digital lira has found a place in Recep Erdogan’s Annual Presidential Program, the state-run Anadolu Agency reported. According to the recently published document, Turkey is set to launch the coin as soon as it completes the design, development and testing phases. The program explicitly notes that a “blockchain-based digital currency” will be introduced.
Tests with the Turkish crypto are expected to commence as early as 2020 but the leadership in Ankara doesn’t stop there. The wider plan is to adopt a roadmap for the development of а full-fledged fintech ecosystem in the country. As part of these efforts, the presidential program envisages the establishment of a “financial technopark” in Istanbul, Turkey’s largest city and economic capital.
The digital lira initiative comes at a time when Turkey is facing mounting economic and financial challenges. Soured relations with the U.S. over Ankara’s rapprochement with Moscow and other independent moves by Erdogan’s administration have even led to a threat from President Trump to “totally destroy and obliterate the Economy of Turkey.”
Over the past few years Turkey was also struggling with high inflation of the paper lira, which has greatly increased the popularity of decentralized cryptocurrencies in the country. A fifth of the Turkish respondents in a study conducted this year stated they owned digital coins. The inflation trend has been reversed in the past months, however, with the rate dropping from over 20% in January to below 9% in October.
Last month, the Central Bank of Turkey cut interest rates to 14% from 16.5% in September and is expected to announce another cut in December. The issue of a central bank digital currency (CBDC) fits in with Ankara’s broader objective to improve and strengthen the country’s economy as well as to build a more stable financial sector with plans for Turkey to become a global financial center. These goals have also been specified in the new presidential program.
States Competing to Issue Digital Currencies
The Turkish government is not the only one working on a digital version of its fiat currency. According to a report published earlier this year by the Bank for International Settlements (BIS), 70% of 63 surveyed central banks are exploring options to introduce CBDCs. According to another report by the Official Monetary and Financial Institutions Forum think tank, as part of which officials from 23 central banks were polled, the first CBDC will be produced within five years, as news.Bitcoin.com reported.
The BIS study was quoted in a letter sent by two congressmen to the Chair of the Federal Reserve Jerome Powell in September. The lawmakers, democrat Bill Foster and republican French Hill, urged the Fed to consider creating a national digital currency, noting that 40 countries are already looking into developing CBDCs. Pressure on the U.S. government to put out a digital dollar has been mounting amid fears of possible decline of the greenback as the world’s reserve currency in competition with private and government-issued digital currencies.
Similar concerns have been expressed in the European Union as well. A recent report by Reuters quoted a draft EU document stating that the European Central Bank should think of introducing a public digital currency to counter Facebook’s project to issue a private coin for users of the social network. The document, prepared by the Finnish presidency for next month’s meeting of EU finance ministers, also urges the Union to develop a common approach and increase regulatory efforts regarding cryptocurrencies.
Meanwhile, the Chinese government has been working on a digital yuan for some time, with the People’s Bank of China recently posting a recruitment notice for six professionals with cryptographic and related experience. A project to issue a Chinese digital currency is part of the recently prioritized blockchain development of the country. A digital yuan would potentially give China an edge in the intensifying competition for global dominance with the U.S. and other major geopolitical players.
Do you expect Turkey to launch a digital version of the lira as early as next year? Share your thoughts in the comments section below.
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