It was announced that the Central Bank reserves increased to 141.4 billion dollars and an all-time record was broken. Why do our economic difficulties continue despite the record breaking in reserves?
Pandemic and its aftermath economic bottleneckIn these days when we are struggling with many problems such as high exchange rates, rising interest rates, it was announced that foreign exchange reserves reached 141.4 billion dollars, breaking a record, with the statement from the Central Bank. While reserves are breaking records The fact that the economic problems have not eased much is also a bit confusing. So what do these reserves do? What does it show us in terms of economy?
First of all, why make a reservation?
Firstly multiple types of reserves It has to be said that it is. Currencies such as euro, dollar, pound sterling, which are convertible foreign exchange assets, gold of international standard, special drawing rights (the right of countries to withdraw that country’s currency from each other’s central bank) and IMF Reserve Positions are called “international reserves” in the literature. is named.
In Turkey gold and foreign exchange reserves storage and management the central bank carried out by. Thanks to these reserves, the Central Bank can intervene in the market when necessary. In developing countries, reserves are especially important in three aspects:
- To be used against possible internal and external shocks, economic fluctuations, to eliminate negative situations,
- Regular performance of external debt service,
- Increasing confidence in the country from international financial circles and markets.
The central bank, using the resources at hand It aims to provide confidence in monetary and exchange rate policies. If the exchange rate increases, it reduces the exchange rate by selling foreign currency to the market. When the exchange rate drops too much, this is also a problem and foreign currency is purchased from the market until it reaches the determined policy price. It provides the foreign currency that the treasury needs and makes the country’s economy resistant to internal and external developments.
What is the target after the reserve record?
In our country imports It is also an important part of production. If I went to have a glass printed for New Year’s Eve today, I would see the change in the price of the glass produced in Kütahya and to be printed on in Istanbul. “Dude, paint it. with dollarsbox with dollarsgasoline with dollars…” It is defended by saying. Although this is not the only reason, it is an important one.
For these reasons, the central bank With the increase in reserves, there is a long-term exchange rate stability There is also an increase in expectations that it will be possible. The belief that the Central Bank can ensure exchange rate stability allows us to take our first step towards reducing fluctuations in prices in the long run, inflation first losing its rate of increase, then stopping, and then giving way to a deflation process, leading to an increase in our purchasing power again.
Consumers who are first affected by inflation will be the last to be affected by positive developments in the economy.
Inflation affects everything and everyone. does not affect at the same speedthis subject Here We explained it in detail. This situation, When inflation starts to slow down It also manifests itself in the same way. The prices of products on the shelves either do not decrease or companies no longer reduce their production costs. to lower levels After withdrawal, it decreases with the emergence of competitive conditions. First, more reserves and a more reliable economy opens the doors of cheaper loans to large companies. Afterwards, companies can protect themselves and their investments under more favorable conditions. configuresDuring this period, interest rates are gradually reduced, allowing money to be put into production. Afterwards, the prices on the shelves decrease and our purchasing power increases accordingly, but finally our purchasing power increases.
It is precisely because of this economic cycle that the reserves are breaking records, which is a big shock for the markets. a positive development While it does not reflect in our pocket immediately, it allows us to renew our hopes for the future to some extent.