The unbearable fragility of the Turkish Lira

The Turkish Lira has recently become the worst fragile currency of 2017, even performing worse than the Mexico peso, which has been under big pressure since Donald Trump was elected as the new U.S. president. 

After falling over 10 percent in the first weeks of 2017, the currency has exposed Turkey's greatest economic risks, from an obvious slowdown in economic reforms to its high dependence on foreign capital and investments to keep the economy afloat. More significantly, all of these are happening at a time when political uncertainties, social tensions and economic slowdown have peaked. 

Nothing happened overnight for the Turkish currency. The lira, along with a number of emerging currencies, started to lose its ground after the U.S. Federal Reserve said it would end the high liquidity party in the global markets in May 2013. Of course, there were several times when the lira was seriously hit in the following years after this date amid many elections, terror attacks and even a failed coup attempt. 

The lira has not, however, faced such a big hit as it saw this past week. 

This dramatic plunge in the Turkish currency's value has coincided with the launch of parliamentary talks over the constitutional amendment, which has resulted in serious concerns among investors that it will be a key step paving the way for President Recep Tayyip Erdoğan to increase his power in a dramatic manner. And I'm not even mentioning a number of terror attacks that have hit the country. In just the last month, Turkey has been hit by four massive terror attacks. 

The Turkish people, who wanted to forget a terrible 2016 and celebrate the coming of the new year, were all shocked in the first hours of 2017 by an armed attack by the Islamic State of...