Currency ‘analysis’ and Kabataş lies

I finally graced the pages of pro-government “newspaper” Sabah on March 7 for my March 6 column, joining other respected Turkish and foreign journalists and columnists they also accused of treason and being an enemy of Turkey. I am only angry it didn’t come any sooner.

The Sabah article was unsigned. Its author claimed that I was targeting the complexity of the economic data I was basing my arguments on. It must be frustrating to have to cover the Turkish economy without much knowledge of economics, but if (s)he had contacted me, I would have gladly gone over my graphs. To make sure (s)he got it this time, I did not feature any data in my March 9 column.

The economics columnist of their English-language “newspaper” Daily Sabah, on the other hand, seems to (more or less) have understood my graphs. He featured me, albeit without giving my name, in his March 9 column. Without addressing any of my arguments on why the Turkish Lira’s weakness against the dollar could spell disaster for Turkey, he simply made some claims on the exchange rate, which were unfortunately inaccurate.

It would be unfair to correct my ex-students, especially those I have failed to teach economics.
However, others, including some in the government, have also claimed that the lira’s weakness is because of the dollar’s strength, especially against the euro. They support their argument by noting that the lira has actually done well against the Euro Area’s currency.



At first look, these arguments may seem convincing. After all, the dollar index, which is the weighted average of a bunch of currencies against the dollar, is at its highest level since September 2003. But what proponents of this view fail to mention is that the lira has been the second-worst performing emerging markets currency, after the Brazilian real, against the dollar and the euro during the past month as well as since the beginning of the year.



The dollar’s surge against the lira began after Jan. 16, when President Recep Tayyip Erdoğan started his tirades against the Central Bank. Interestingly, the euro dollar exchange rate hovered in the 1.12-1.14 range from the third week of January to early March, when the European Central Bank kicked off its quantitative easing program. As a result, the lira’s depreciation against the euro mirrored its plunge against the greenback.



In any case, I just can’t see how any country’s currency would rank much better, when compared to its peers, against the euro than the dollar. After all, a currency’s exchange rate against the euro is its exchange rate against the dollar, multiplied by the euro-dollar exchange rate. If you are mathematically inclined, just take logarithms, or logs, and time derivatives of both sides of this identity for Turkey. You’ll see that lira depreciation against the euro can be approximated by lira depreciation against the dollar, subtracted by euro depreciation against the dollar.

Radikal and Hürriyet columnist Uğur Gürses noted in a recent column, where he took on the same topic, that “with mathematics in front of us, the rest is just Kabataş lies.” Unfortunately, those in pro-government “newspapers,” who cannot take logs but are “logs” themselves, have no other choice.