The New Turkish Lira presented by Simge Tarhan tarhan umn edu www econ umn edu tarhan 1 Info on Me Ph D candidate at the Department of Economics Research Interests Political Economics Growth and Development Public Economics Teaching Interests Macroeconomics Money and Banking Economic Development 2 Info on Turkey Original name T rkiye Capital city Ankara Biggest city Istanbul Founder Mustafa Kemal Atat rk Political System Parliamentary Democracy 3 Where is Turkey 4 Types of Inflation When inflation is classified according to its course of development it is possible to identify three types Creeping inflation One digit inflation Stepping inflation Two digit inflation Hyperinflation Two or three digit inflation 5 Types of Inflation on a Graph 6 Severe Hyperinflation around the World Hungary at the end of WWII 4 19 1016 per month prices double every 15 hours Yugoslavia 1993 94 5 1015 per month prices double every 16 hours Greece 1941 44 8 55 109 per month prices double every 28 hours Germany early 1920s 3 25 106 per month prices double every 49 hours 7 19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 20 02 Inflation rate A First Look at Inflation in Turkey 140 120 100 80 60 40 20 0 20 Year 8 Stepping Inflation in Turkey Turkey has suffered from stepping inflation for more than 25 years Stepping inflation is sustainable people update their expectations and behave accordingly 9 Inflation and Currency As prices rise steadily economic values are expressed in ever larger numbers A bottle of drinking water 300 000 TL Movie ticket 7 500 000 TL Toyota Corolla 32 900 000 000 TL 32 billion Turkish GDP in 2002 273 463 167 795 000 000 TL 273 quadrillion 10 Inflation and Currency As a result New banknotes in larger denominations were put into circulation nearly every 2 years since 1981 The highest denominated banknote used in Turkey was 20 000 000 11 Problems with the Old Currency Low credibility of Turkish Lira Problems in accounting and statistical records data processing software and payment systems 12 Redenomination of the Turkish Lira Remove 6 zeros The new currency Yeni T rk Liras YTL The New Turkish Lira Conversion Rate TL 1 000 000 YTL 1 13 Details of the Redenomination Operation New Turkish Lira and new coins were put into circulation on 1 January 2005 Throughout 2005 Turkish Lira and New Turkish Lira banknotes and coins were concurrently in circulation In 2009 New before the Turkish Lira will be removed and the use of the expression of TL will be reintroduced 14 Concurrent Use of TL and YTL Prices were displayed in terms of both TL and YTL Businesses accepted both currencies during that period Why So that the currency conversion process would be accomplished in its natural course 15 Why did Turkey wait until 2005 Transition to new currency units is performed along with a stabilization program in general and following the successful results of the program on the inflation front Since the successful implementation of the current stabilization program has produced favorable results it was deemed appropriate to start the operation in early 2005 16 Benefits of Redenomination Technical and operational problems arising from the use of figures with multiple zeros will be settled Determination in bringing inflation down to single digits permanently will be better comprehended Transition to single digit inflation will restore the credibility of Turkish currency The habit of using coins will develop 17 Cost of Redenomination Time and Menu Costs Increases in transaction time Changing prices in labels menus catalogs Changing laws regulations Changing balance sheets accounting records Changing software 18 What if Inflation Comes Back This is a worry many people share If Turkey suffers from high inflation in the future zeros would come back That would mean that redenomination program would only be an extra cost to the economy 19 Other Countries Who Redenominated Their Currencies Brazil 18 zeros in 6 operations 1967 70 86 89 93 94 Argentina 13 zeros in 4 operations 1970 83 85 92 Israel 9 zeros in 4 operations 1980 85 Bolivia 9 zeros in 2 operations 1963 87 Peru 6 zeros in 2 operations 1985 91 Ukraine 5 zeros in 1 operation 1996 Poland 4 zeros in 1 operation 1995 Mexico 3 zeros in 1 operation 1993 Russia 3 zeros in 3 operations 1947 61 98 Iceland 2 zeros in 1 operation 1981 20