Synoptic Revision - Micro & Macro Effects of Currency Depreciation
Last updated 11 Jun 2022
In this revision video, we walk through some of the micro and macroeconomic effects of a severe currency depreciation using the Turkish economy as context.
The Turkish lira has experienced a severe depreciation during 2021-22. The country's central bank has been selling foreign reserves to prop up the currency. But Turkish President Erdogan has told the central bank not to raise interest rates in order to attract investors to the currency, which would potentially strengthen it. In 2018, the Turkish currency fell from being valued at around 28 US cents to every lira to just US 15 cents, before stabilizing at around 19 cents in 2019. Throughout 2020 and 2021, the currency lost value gradually before its newest sharp drop in recent months.
Turkey relies heavily on tourism - in 2018, it directly accounted for 7.7% of total employment, directly employing 2.2 million people. Total tourism income represented 3.8% of GDP and, travel exports accounted for 51.9% of total service exports in 2018.