Why are gold and foreign currency reserves decreasing?

Deputy Prime Minister Mehmet Şimşek said last week that companies had a substantial foreign currency deficit and that they were working on curbing these. He said the current problem was managing the foreign currency gaps and that they were working on how to assist the private sector. 

While it was being “loudly announced” since mid-2013 that the era of “easy money” was definitely going to end, the first sign of this was the hike in exchange rates, but somehow, they tried to mislead it by blaming the Gezi Park incidents.

Also, not too far away, on Sept. 23, when Moody’s lowered our rating, this was more of a hot “alarm bell” but the reaction from politicians was “we don’t give a damn.” But now, unfortunately, we cannot avoid the consequences. 

Beyond the exchange rate hike, there is a deepening gap between the incoming capital and the foreign currency needed by the country. As a matter of fact, in its simplest terms, the imbalance between the supply and demand of foreign currencies has caused the foreign exchange reserves to erode. The practices carried out in the state of emergency and concerns about property rights have indiscreetly fueled this.  

Even though Ankara is still trying to hide its management failure by explaining this as “a conspiracy against the country” or “a coup attempt against the economy,” the reality is there. Since Sept. 23, the gold reserves of the Turkish Central Bank has decreased to $4.2 billion, foreign currency reserves to $7.6 billion, thus, in total a $11.9 billion fall. This fall that corresponds to a 10 percent drop, has been continuing steadfastly for the past six weeks since Nov. 11. 

It does not help, actually it worsens, first to underestimate economic realities and requirements, and then “externalize” them by writing conspiracy theories. 

The Central Bank which has entered 2014, 2015 and 2016 with more than 500 tons of gold reserves has lost 137 tons of gold reserve as of Dec. 16. 

Gold reserves are not a category that changes direction as quickly as foreign currency reserves. For this reason, the increased drop after the state of emergency is drawing attention. The gold reserves have gone from 515 tons at the beginning of the year to 378 tons on the week of Dec. 16. This means a 27 percent fall. This, at the same time, is the lowest gold reserve figure of the past three and a half years. 

The 83 tons of the 137 tons of loss occurred after the July 15 coup attempt, during the state of emergency period. Moreover, the portion of 63 tons, almost half of this amount, dropped during the period following the Sept. 23 rating cut. 

Only 116 tons of the total 378 tons of gold has its own assets in the Central Bank. The rest, in other words, a major portion, is made up of the required reserve of gold in banks. They can be withdrawn any minute if wished. 

Gold was accumulated at the Central Bank via this required reserve of banks. Now, because of both the cut in international ratings and the spread of rumors on non-market measures (capital controls), it has been reported that foreign creditors are also uncomfortable. The fall in gold reserves seems to have been reflected, as a result, on the balance sheet of the bank.