Turkey's Golden Solution

Turkey Targets Gold Stashes

The Turkish government, facing a bloated current-account deficit that threatens to derail the country's rapid expansion, is trying to persuade Turks to transfer their vast personal holdings of gold into the country's banking system.

The push to tap into the individual gold reserves—the traditional form of savings here—is part of Ankara's efforts to reduce a finance gap that is currently about 10% of gross domestic product.

Government officials say the banking regulator will soon publish a plan to boost incentives for consumers to park their household wealth inside the financial system. Banking executives said they are considering new interest-yielding gold-deposit accounts that would allow savers to withdraw gold bars from specially designed automated teller machines.

The moves come after the central bank in November announced that lenders could hold up to 10% of their local-currency reserves in gold, in part to tempt Turkey's gold hoarders to deposit their jewelry, coins or bullion at banks.

Economists say the policy shift is designed to change Turks' historic preference for storing a high percentage of personal wealth outside the banking system as a way to protect themselves against the economic volatility that has periodically hit Turkey in recent decades.
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The moves come after the central bank in November announced that lenders could hold up to 10% of their local-currency reserves in gold, in part to tempt Turkey's gold hoarders to deposit their jewelry, coins or bullion at banks.

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Here's the scenario: a falling currency, a widening trade deficit, and a population buying more and more gold. What's the result? Well, it tends to be an unhappy government - followed by a policy response.

We've seen it Vietnam, where central bankers continue to make noises about "mobilizing" the country's privately held gold, having last year handed an effective monopoly to a single refiner (later "administratively acquired" by the central bank).

We're seeing it in India, where the government has quadrupled import duties since the start of the year.

And we may be about to see it in Turkey ...

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The Turkish central bank has doubled the amount of gold that lenders can hold in reserves (as opposed to paper money - Lira) as part of their reserve requirement changes. As the WSJ reports, this shift from 10% to 20% means that Turkish banks can use their shiny yellow metal as fungible money reserves against foreign currency deposits. This move follows closely on the heels of our comments on last week's 'gold transfer' efforts in Turkey to unleash some of the country's vast personal holdings of Gold. This effort to draw down on the nation's individual gold reserves - the traditional form of savings in Turkey - is part of Ankara's efforts to reduce a finance gap that is currently around 10% of GDP but more importantly it should serve as a lesson reality-check for Bernanke that gold is money and in the words of a 70-year-old housewife "In an emergency, I can convert [gold] to cash and I don't have to wait for the bank to say the asset has matured." ...

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ADK said:

Wow.

Thanks for the gold, here's your paper.

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benjamen said:

New article:
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PMBug said:

That's taking the cash4gold scheme to a whole new level.

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