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Three weeks ago, when Turkey was scrambling to defend the lira ahead of local municipal elections, a potentially destabilizing event which saw significant selling of the currency (and which ended up badly for Erdogan's ruling AKP party, which lost control of the two most important cities, Ankara and Istanbul), we reported that "the Turkish central bank had burnt through at least a third of its foreign reserves in March in an effort to stem a plunge in the lira", in a repeat of the crisis that engulfed the lira last summer and triggered a blast of inflation and the first recession in a decade, and was "putting the country on path to a full-blown currency and funding crisis."
And despite what was a clear, continued central bank defense of the Turkish lira since then, Turkey's official reserves actually appeared to rise, in what was meant to telegraph confidence in the currency and give the impression that the lira was stable without continued central bank support.
Problem - Bank - State - Country - Reserves
There was just one problem: the central bank appears to have been if not lying, then grossly misrepresenting the true state of the country's foreign reserves .
As it turns out, Turkey has been pulling a financial trick popularized by China's PBOC for the past several years, and according to the FT, the country's central bank was propping up its foreign currency reserves with billions of dollars of short-term borrowed money, "raising fears among analysts and investors that the country is overstating its ability to defend itself in a fresh lira crisis."
High - End - March - Turkey - Reserves
After tumbling from a recent high of $34 billion to $25 billion at the end of March, Turkey reported that the net foreign reserves held by the central bank stood at $28.1 billion in early April — a sum which the FT notes was already believed to...
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