TheThe NewNew TurkishTurkish LiraLira
presentedpresented byby
SimgeSimge TarhanTarhan
[email protected]@umn.edu www.econ.umn.edu/~tarhanwww.econ.umn.edu/~tarhan 1 InfoInfo onon MeMe
55th--yearyear Ph.D.Ph.D. studentstudent atat thethe DepartmentDepartment ofof EconomicsEconomics
ResearchResearch InterestsInterests:: GrowthGrowth andand Development,Development, PublicPublic Economics,Economics, PoliticalPolitical EconomicsEconomics
TeachingTeaching InterestsInterests:: Macroeconomics,Macroeconomics, MoneyMoney andand Banking,Banking, EconomicEconomic DevelopmentDevelopment
2 InfoInfo onon TurkeyTurkey
OriginalOriginal namename:: TTüürkiyerkiye CapitalCapital citycity:: AnkaraAnkara BiggestBiggest citycity:: IstanbulIstanbul FounderFounder:: MustafaMustafa KemalKemal AtatAtatüürkrk OfficialOfficial languagelanguage:: TurkishTurkish PoliticalPolitical SystemSystem:: ParliamentaryParliamentary DemocracyDemocracy
3 WhereWhere isis Turkey?Turkey?
4 TypesTypes ofof InflationInflation
WhenWhen inflationinflation isis classifiedclassified accordingaccording toto itsits coursecourse ofof development,development, itit isis possiblepossible toto identifyidentify threethree types:types:
CreepingCreeping inflationinflation ––OneOne--digitdigit inflationinflation
SteppingStepping inflationinflation ––TwoTwo--digitdigit inflationinflation
HyperinflationHyperinflation ––TwoTwo-- oror threethree--digitdigit inflationinflation
5 TypesTypes ofof InflationInflation onon aa GraphGraph
6 SevereSevere HyperinflationHyperinflation aroundaround thethe WorldWorld
Hungary (at the end of WWII): 4.19 × 1016 per month (prices double every 15 hours)
Yugoslavia (1993 - 94): 5 × 1015 per month (prices double every 16 hours)
Greece (1941 - 44): 8.55 × 109 per month (prices double every 28 hours)
Germany (early 1920s): 3.25 × 106 per month (prices double every 49 hours) 7 AA FirstFirst LookLook atat InflationInflation inin TurkeyTurkey
140 120 100 80 60 40
Inflation rate Inflation 20 0
-20 66 02 969 1960 1963 19 1 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 20 Year
8 SteppingStepping InflationInflation inin TurkeyTurkey
TurkeyTurkey hashas sufferedsuffered fromfrom steppingstepping inflationinflation forfor moremore thanthan 2525 yearsyears
SteppingStepping inflationinflation isis sustainablesustainable -- peoplepeople updateupdate theirtheir expectationsexpectations andand behavebehave accordinglyaccordingly
9 InflationInflation andand CurrencyCurrency
AsAs pricesprices riserise steadily,steadily, economiceconomic valuesvalues areare expressedexpressed inin everever largerlarger numbersnumbers
AA bottlebottle ofof drinkingdrinking waterwater:: 300,000300,000 TLTL MovieMovie ticketticket:: 7,500,0007,500,000 TLTL ToyotaToyota CorollaCorolla:: 32,900,000,00032,900,000,000 TLTL (32(32 billion)billion) TurkishTurkish GDPGDP inin 20022002:: 273,463,167,795,000,000273,463,167,795,000,000 TLTL (273(273 quadrillion)quadrillion)
10 InflationInflation andand CurrencyCurrency
AsAs aa result:result:
NewNew banknotesbanknotes inin largerlarger denominationsdenominations werewere putput intointo circulationcirculation nearlynearly everyevery 22 yearsyears sincesince 19811981
TheThe highesthighest--denominateddenominated banknotebanknote usedused inin TurkeyTurkey waswas 20,000,00020,000,000
11 ProblemsProblems withwith thethe OldOld CurrencyCurrency
LowLow credibilitycredibility ofof TurkishTurkish LiraLira
ProblemsProblems inin accountingaccounting andand statisticalstatistical records,records, datadata processingprocessing softwaresoftware andand paymentpayment systemssystems
12 RedenominationRedenomination ofof thethe TurkishTurkish LiraLira
RemoveRemove 66 zeroszeros
TheThe newnew currencycurrency:: YeniYeni TTüürkrk LirasLirasıı (YTL)(YTL) (The(The NewNew TurkishTurkish Lira)Lira)
ConversionConversion RateRate:: TLTL 1,000,0001,000,000 == YTLYTL 11
13 DetailsDetails ofof thethe RedenominationRedenomination OperationOperation
NewNew TurkishTurkish LiraLira andand newnew coinscoins werewere putput intointo circulationcirculation onon 11 JanuaryJanuary 20052005
ThroughoutThroughout 2005,2005, TurkishTurkish LiraLira andand NewNew TurkishTurkish LiraLira banknotesbanknotes andand coinscoins werewere concurrentlyconcurrently inin circulationcirculation
InIn 2009,2009, ““NewNew”” beforebefore thethe ““TurkishTurkish LiraLira”” willwill bebe removed,removed, andand thethe useuse ofof thethe expressionexpression ofof ““TLTL”” willwill bebe reintroducedreintroduced 14 ConcurrentConcurrent UseUse ofof TLTL andand YTLYTL
PricesPrices werewere displayeddisplayed inin termsterms ofof bothboth TLTL andand YTLYTL
BusinessesBusinesses acceptedaccepted bothboth currenciescurrencies duringduring thatthat periodperiod
Why?Why? SoSo thatthat thethe currencycurrency conversionconversion processprocess wouldwould bebe accomplishedaccomplished inin itsits naturalnatural coursecourse
15 WhyWhy diddid TurkeyTurkey waitwait untiluntil 2005?2005?
TransitionTransition toto newnew currencycurrency unitsunits isis performedperformed alongalong withwith aa stabilizationstabilization programprogram inin general,general, andand followingfollowing thethe successfulsuccessful resultsresults ofof thethe programprogram onon thethe inflationinflation frontfront
SinceSince thethe successfulsuccessful implementationimplementation ofof thethe currentcurrent stabilizationstabilization programprogram hashas producedproduced favorablefavorable results,results, itit waswas deemeddeemed appropriateappropriate toto startstart thethe operationoperation inin earlyearly 20052005
16 BenefitsBenefits ofof RedenominationRedenomination
TechnicalTechnical andand operationaloperational problemsproblems arisingarising fromfrom thethe useuse ofof figuresfigures withwith multiplemultiple zeroszeros willwill bebe settledsettled
DeterminationDetermination inin bringingbringing inflationinflation downdown toto singlesingle digitsdigits permanentlypermanently willwill bebe betterbetter comprehendedcomprehended
TransitionTransition toto singlesingle--digitdigit inflationinflation willwill restorerestore thethe credibilitycredibility ofof TurkishTurkish currencycurrency
TheThe habithabit ofof usingusing coinscoins willwill developdevelop
17 CostCost ofof RedenominationRedenomination
TimeTime andand MenuMenu CostsCosts
IncreasesIncreases inin transactiontransaction timetime ChangingChanging pricesprices inin labels/menus/catalogslabels/menus/catalogs ChangingChanging laws/regulationslaws/regulations ChangingChanging balancebalance sheets/accountingsheets/accounting recordsrecords ChangingChanging softwaresoftware
18 WhatWhat ifif InflationInflation ComesComes Back?Back?
This is a worry many people share
If Turkey suffers from high inflation in the future, zeros would come back!
That would mean that redenomination program would only be an extra cost to the economy
19 OtherOther CountriesCountries WhoWho RedenominatedRedenominated TheirTheir CurrenciesCurrencies
Brazil – 18 zeros in 6 operations (1967/70/86/89/93/94) Argentina – 13 zeros in 4 operations (1970/83/85/92) Israel – 9 zeros in 4 operations (1980/85) Bolivia – 9 zeros in 2 operations (1963/87) Peru – 6 zeros in 2 operations (1985/91) Ukraine – 5 zeros in 1 operation (1996) Poland – 4 zeros in 1 operation (1995) Mexico – 3 zeros in 1 operation (1993) Russia – 3 zeros in 3 operations (1947/61/98) Iceland – 2 zeros in 1 operation (1981) 20