Turkey and Qatar tripled the limit on currency swap agreement to $15 billion equivalent of Turkish lira and Qatari riyal, according to statement by the Turkish central bank on Wednesday.
“The core objectives of the agreement are to facilitate bilateral trade in respective local currencies and to support financial stability of the two countries,” the bank said.
The announcement follows raised market hopes for a swap deal between Turkey and Japan/UK as the speculations had rallied the lira to 6.78 levels against the dollar this morning.
Turkey’s ability to secure a $15 billion with Qatar is worthy of little positive news. The swap deal between Turkey and Qatar is to be conducted in Turkish lira and Qatari riyal. The agreement will increase the FX reserves of Turkey’s central bank by $10 billion but in reality it does not help with the dollar shortage problem Turkey has to fulfill its external liabilities. As the former CBT Governor Yilmaz pointed out, the initial swap agreement was limited to $5 billion and the Turkish central bank never really sold any of it in exchange of dollars, in an effort to guard for the value of riyal. Now the swap deal is escalated by another $10 billion to a total of $15 billion. The Turkish central bank is again unlikely to use the riyals to gain US dollars with a similar worry in mind.
Apart from Qatar that still has strong ties with the Erdogan administration, none of the major central banks so far agreed to secure a swap deal with Turkey. Thus, stripping off the initial positive mood the news create as evident from the limited rally in lira, Turkey-Qatar swap agreement confirms how Turkey has shied mainly western foreign investors away even before and during the coronavirus. Turkey’s failure to practice a ruled based economy management prevents the country from aligning with major central banks as well. Such as the Fed, the ECB and perhaps BoE and BoJ.