The rumors of “500 TL banknotes” have resurfaced. The initial claim made last year was quickly refuted by the former Minister of Treasury and Finance, Nureddin Nebati, stating that the allegations were baseless. Last month, several reports claimed that the molds for the 500 TL banknotes had been forged, and more recently, images of a new 500 TL banknote have been making the rounds on social media. Economist Güldem Atabay spoke to Medyascope about the claims of the 500 TL banknotes
Turkey has been facing a recent inflation crisis that has had significant impacts on its economy. Inflation rates have soared, leading to a sharp decline in the purchasing power of the Turkish Lira. This crisis has been attributed to various factors, including loose monetary policy, high government spending, political instability, and external shocks such as the COVID-19 pandemic. The devaluation of the currency, rising import prices, and increasing production costs have burdened businesses and consumers alike. Efforts to combat inflation and stabilize the economy have been numerous but largely ineffective. As a result, there are yet again rumors of a new 500 TL banknote in the works in light of the Lira’s dwindling value.
According to the data from the Central Bank, the number of 200 TL banknotes in circulation increased by 104% in 2022, as inflation takes its toll on the country, constituting 56% of the total currency.
Economist Güldem Atabay spoke to Medyascope about the claims of the 500 TL banknotes and discusses the implications if they are in fact put into circulation.
“The reason for the need to transition to larger banknotes is entirely due to inflation,” emphasized Economist Atabay, highlighting that as inflation rises, the purchasing power of existing banknotes decreases:
“As a result, there is an increased need to carry cash. Therefore, there is a need to transition to banknotes with higher purchasing power. They [the government] delayed its release in an effort to avoid creating a negative optics prior to the elections, but this was the result of the rapid, intense, and sudden inflation experienced in the past two years. Instead of carrying ten 200 TL banknotes or five 200 TL banknotes, we will carry two 500 TL banknotes. So, the reason for this is entirely due to inflation.”
“There is no fight against inflation; rather, there is only adaptation.”
“In the periods following the 2001 crisis, there was a plan to fight against inflation, and six zeros were dropped from the currency. Now we see that those zeros are gradually being added back. Currently, one and a half or two zeros have been added. In other words, there is no fight against inflation; instead, there is only adaptation.”
Does it have any relation to informal economy and untaxed income?
Turkey has a significant informal economy, characterized by unregistered and unregulated economic activities. The informal sector plays a substantial role in Turkey’s economy, accounting for a significant portion of employment and economic output. The informal economy poses challenges for the government in terms of revenue collection, labor rights, and overall economic stability and despite decades of efforts to curb its prevalence, it remains a persistent issue.
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Regarding the possible issuance of 500 TL banknotes, Atabay commented on the potential impact on the informal economy and untaxed income, referring to the formation of dual or triple exchange rates before the elections on May 14th:
“If you want to buy or sell foreign currency, you have to carry the equivalent amount in Turkish Lira in suitcases. If you wanted to buy foreign currency from the bank in an informal way, the options were limited, there were restrictions. If you tried to buy from the Grand Bazaar, you would reduce the scale of the cash you carried. We can extend this situation to the broader context of the informal economy.”
“Mehmet Şimşek is forming a new team, but the underlying mindset remains the same.”
The newly re-appointed Minister of Finance Mehmet Şimşek played a significant role in implementing economic reforms and policies aimed at promoting fiscal discipline, attracting foreign investment, and maintaining economic stability in Turkey. His re-hiring has been heralded as a return to orthodox economic policies by many; Atabay however, is less enthusiastic than most.
Atabay stated that the fundamental problem lies in inflation, incorrect economic policies, and everything covered by the “new economic model”. She states that the new Treasury and Finance Minister Mehmet Şimşek is expected to form a team and take necessary steps in light of the country’s dire economic stance, but she emphasized that the underlying mindset remains the same.
Atabay stated that the issuance of 500 TL banknotes would not provide any benefit, saying, “This will only reduce the cost of carrying cash. Our wallets won’t be bulkier, but of course, it indicates that the economy is not doing well.”
“A highly negative development, indicating that the economy is not doing well.”
Atabay pointed out that when looking at stable economies in terms of foreign exchange and inflation, banknotes remain unchanged for many years or decades, saying:
“You don’t see$150 or $200 banknotes in stable economies. This is correlated with the stability in the economy. In countries like Venezuela or Argentina, you see that banknote values increase as inflation reaches abnormal levels. Currently, the Turkish economy is heading down that path again.”
