In early January, I wrote about how the Turkish government was hinting at their plans to collect part of an estimated 5,000 tonnes of gold and gold jewelry held by the Turkish people as part of an effort to save its currency — the lira.
A few weeks ago, Turkey’s Minister of Finance, Nureddin Nebati, met with ~100 high-level investors in London to outline Turkey’s new economic plan. He pledged to stabilize the lira exchange rate and bring down price inflation, all while still maintaining low interest rates. The period over the last 4 months or so has been a roller coaster ride for the Turkish currency as the government continues its policy of devaluation. But instead of shifting policy, the Turkish government is chasing other avenues of salvation, such as gold collection.
Well, now the government has formalized the plan and is making it a reality. I said that I didn’t believe the Turkish people are going to fall for this scam. I hope this turns out to be true.
The Gold Collection Pitch
Part of Nebati’s pitch to investors was the scheme to get households to convert their gold into lira. He told investors that if he can get just 10% of the people’s gold into the coffers of the government, this would amount to an injection of roughly $25 billion dollars.
Nebati’s scheme is currently based on encouragement. But to be successful, the people will have to be convinced to give trust to the Turkish government. Easier said than done. There is a long history of distrust that must be overcome. As the country faces a rise in price inflation now near ~50%, President Erdogan faces a fall in approval ratings.
Part of the gold collection plan is to work with Turkish jewelers and banks. Mr. Nebati told investors that ~30,000 gold shops would purchase privately held jewelry and sell it to one of five government-contracted refineries that would then convert the jewelry into bullion.
The program starts next month. Citizens will be able to turn in their gold savings to banks or jewelry stores. Nebati told the the people that, “citizens can easily retrieve their gold any time they request it,” assuring them that the new system will protect their gold deposited in banks. Yeah, right.
What Happens When Encouragement Fails?
As I said before, I have little faith that the Turkish people will fall for this scheme (scam, I should say). But what happens when the government doesn’t get what it wants, what it told its investors it could achieve? Does encouragement turn into confiscation?
Only time will tell. We shall see.