Understanding Turkey’s Bold Plan To Stabilize the Lira

you mean. It does seem to pop up like at least once a year and suddenly everyone's very focused on it, and then within a month or two people seem to have forgotten it, or at least it's moved out of the limelight. But I have to say we're recording this on Christmas Eve, December, and this week in particular or has been one of those weeks where everyone wakes up and decides that they all have opinions on Turkey and what's going on there. And to be fair, we have

seen this enormous amount of volatility in the lira. So I think the lira was up something like twenty five per cent on a single day this week after are to Wan announced a new mechanism to try to stop its halt, and before that it was down. I think it had lost like half its value over the past three months. So just crazy moves in the currency. Yeah, right. There are a lot of e m s which see

significant currency volatility. You know, we see it in Brazil from time to time, we see it in South Africa and so forth, but there seems to be nothing quite like the volatility that we see in the Lira, and it's incredibly volatile. And as you mentioned, and you said there a day I think it was up like thirty five from the lows of that day, because I think

in the morning it was down ten percent. But as you mentioned, President Radwan having instituted a new mechanism to attempt to stem the decline, and we'll get into how that works. I think it was up thirty like truly, any sort of like macro tourist and what is interest in currencies, monetary policy, etcetera, had to be sort of like jaw dropping at that move that day, right. And the other thing going on with Turkey, of course, is this,

I guess, rejection of economic orthodoxy. So when it comes to emerging markets, I think there's often a perception that, you know, e M s are different to developed economies for a variety of reasons. But there's always concern about fiscal discipline and whether or not they're going to be conservative, whether or not they have the institutional strength to you know,

keep the economy in check and keep it stable. And then when it comes to Turkey, we've seen just I guess, an extreme version of these concerns, where are Doowan is rejecting economic orthodoxy. He keeps lowering interest rates and that's leading to inflation and that's causing the currency to fall, and no one really knows how to interpret it. I guess, yeah,

I think that's exactly right. And you see it from time to time that various e M s will say, have a central banker who is very steeped in a sort of neoclassical economics, and whether the sort of measures are successful or not, there's always this sort of there's often this sort of portrayal to foreign investors of like

fiscal discipline in central bank independence and macroeconomic orthodoxy. And I think, uh, you know, people look at Turkey and they see an example of a country and a system that very much not playing by those sort of like the standard playbook, and then they see the volatility and they say, oh, well, this is what happens when you don't when you don't follow the rules laid out by the University of Chicago Economics department. Yeah, that's one way

of putting it. Yeah, anyway, but I still, you know, I again I sort of edgine, like, you know, we're all so many like tourists look at Turkey, and I don't think we have like a truly deep understanding of what is going on in the economy, approach to monetary policy, what is going on with the leer and so forth. So I'm very excited about our guest today who is going to help us understand everything about how the Turkish economy and monetary system works. We're gonna be speaking with

Lutfla Bingo. He's an economist at a bank in Istanbul al Baraka Turk Lutfala. Thank you so much for joining us, Thanks for having So why don't we start? I mean, would you say it's I mean, it's a fair characterization, this idea that in this very Turkey, in a very sort of overt sense does not sort of make the same I guess that. Yeah, I want to play by the same playbook as many emerging markets typically attempted. There are some similarities with some periods with some countries, but

Turkey has some very unique fundamental conditions. Some of these are issues, and some of these are strengths, and the Turkey Turkish economy is of course bound by these. That is why sometimes Turkey makes different choices than the rule book. I'm not even sure a proper rule book exists for emerging markets, but that will be one of my arguments today. There is no rule book for what Turkey goes through it and there will be one if this instrument works.

You're talking about the attempt to stabilize the lerou that was announced this week. But before we get to that, can I just ask a really basic and I guess this is the obvious question, but you know what is where all the interest rate cuts? Like, where does the refusal to actually raise interest rates come from? And what's the rationale for going in that direction? To answer that question, I'm going to have to provide an entire framework, which I was planning to do anyway. Ship So who should

I go and do that? Ye? Sure, please go for it? First, off. It's going to sound like a cliche, but I do not believe in structures or you know, claims. I believe in incentives, and for various reasons I'm going to talk about today the central bankers goal of price stability and the policymakers goal of you know, having growth providing jobs. Those are two conflicting goals in the case of Turkey, and that is for precisely one reason, because there is

a huge amount of dulverization. And that is precisely why I do not see this week's move as just the short term measure to you know, stabilize the er. I see it as a crucial structural reform. I begin this week extremely pessimistically. I had almost no hope, but now I'm rather hopeful because what they announced it tells me that they diagnose the problem right, and if the mechanisms

announced work, we won't have that problem anymore. So for the first time in probably Turkish history, after the end of you know, Breton Woods, perhaps we will have a proper alignments of incentives. So I think I will have answered the question why the policy makers you know, add fuel to the fire whenever there is a global USD cycle downturn. Whenever fed heights interest rate, you see central bank independence and Turkey disappear. I will try to explain

why is that? So, what do we get it? Just get give us this sort of basic argument for because I think from a sort of like foreign perspective, the typical story is air do Wan is pushing this sort of like very heterodox, unusual policy. It's not out of the central anchor playbook. It's bad. We get to the lira, people flee to dollars and so forth, and it leads

to inflation and price instability. It sounds like your argument is that it's something much deeper and much more structural with the Turkish economy, and that it can simply be attributed to these sort of idiosyncratic policy choices. So before we even get into the mechanism, and we'll talk about that, of course, what is it about the structure of the Turkish economy in your view, that creates these cycles? There are three types of flows that are inconsistent with each other.

So you have dollarization, you have the current account balance, and you have the foreign capital inflows and outflows. There is no single interest rate that can balance all three of these in the case of Turkey, so whatever you do, you'll sacrifice something. And in the case of Turkey, if given this structure, if you don't change anything, you take this is given if you aim for price stability, and the global central banks, especially FED, is hiking interest rates.

So you do not have that much capful flows, you do not receive that much capital flows, there is no way you can grow. Basically that that will be my argument. And any policymaker anywhere in living in a democracy wants the economy to grow and if something is standing in the way of that, that that thing will be run over. That that that is what's happening in Turkey, and if dollarization issued, it's result I think you'll see are gone

talking about interest rates a lot less. Can you, just before we move on, can you talk about how dollarization became such a thing for the Turkish economy, because of course, there are a lot of emerging markets that have dollarization to some degree. They have people who you know, don't necessarily trust the local currency and want to shift into something that they perceive as more safe, or they have a lot of you know, trade that's denominated in dollars,

things like that. But in Turkey, as you just laid out, it seems to be extreme or it seems to be more of an issue because of the structure of the economy. So how did that happen. It started with a very premature capital account of done by the late President Turkados All In with that kepital account opening, he also let people have FX deposit accomps in local banks, So that's

how it started. And throughout the nineties there was this predictable pattern whenever, whenever there was something wrong with the Turkish economy you know USD Lira exchange, it blew up. So if you are a you know, household, if you're a person observing this pattern, this means you have now access to a put option. That's pretty much it's in the case of Turkey, I argue the main reason for dolorization is that that's the only tail events hedge household

has access to. And that's what makes this problem hugely pernicious, because if you treat it like some sort of simple portfolio choice and tried to solve it that way, it doesn't work. And I'll tell how they treated that way

and it didn't work. And now for the first time, diagnosing the problem right that you know, dollarization, households holding dollars is a tail event hedge, and unless you completely replicate the payoff structure of that tail event hedge, there is no way you can prevent dollarization, you know, borring capital controls or something. So this is the first credible attempt to do that. I think that That's what I meant by they seem to be diagnosing the problem, right.

What do I mean by you can't solve this problem by treating it as a simple portfolio choice issue. If this is another risky asset, what do you do? You hike interest rates, right, you make the alternative more preferable. You should be able to solve your problem. Right, But that does not work in in the case of Turkey. Whenever you hike interest rates, if other uncertainties are still their, households do not just go ahead and buy lira. They hold onto their dollars, and they buy even more if

the uncertainty is extreme. And another issue is if there is saying momentum in the US the Lira exchange eight, you see households buying more. That is typical for the case of a put option. But if it was a simple sort of portfolio choice. There is a chance you might observe that, but it should not be this predictable. So I think one major difference is let me give you an example. Let's say Tesla wants to know dissuade put option buyers and it's stock from buying put options,

and to do that, fits increased it's dividends. Would it work? I think not, because the put option is a tail event hedge and increasing dividends does nothing to that. I mean, it would weaken Tesla's balantie it would it would, yes, I mean that was one of the things that happened in Turkey as well. They would do nothing to Tesla put buyers. So if you want folks from you, if you want to prevent folks on buying Tesla puts, you have to somehow replicate that payoff structure or remove on

certainty completely. But removing on certainty completely means you can't grow either, and I'm not sure if that's something you want. I mean, providing a stock that is completely you know, treading with a fixed price would solve that issue, But would you want that? I think not. So I think that's that That's a good example of what we're dealing with here we where we go on. I just wanna clarify this because I think this is important to understanding

your argument. So in a typical sort of like portfolio channel, you're like raise the interest rate and that creates some sort of like marginal incentive to hold lira. But if people are holding dollars as a tail risk hedge, then

it really doesn't solve the problem. Can you just explain a little bit further this idea, the tail risk hedge against what And you sort of mentioned the premature opening of the capital account in the late eighties, But what is the impulse to hold such a strong um tail risk hedge and how is this not previously appreciated by policy? This is the dynamic of that previously appreciated by policymakers. Let me describe what happened when they tried to hide

rates to solve this issue. And for a while it looked like they solved this issue. After the two thousand and one crisis in Turkey, there was this im stirchial program and you know the primary objective of that program, it was to decrease inflation, you know, control inflation, and to do that you have to provide some sort of currency stability, and one of the major roadblocks in front of that was dollarization. And it did something else as well.

It dollarization weakens the monetary transmission mechanisms. So you're they hired the dollarization your montree policy works, you know, whereas hiking the interest rates a lot, providing a huge amount of real interest rate to savers should have done the trick, and for a while it did. I mean, after the two thousand and one crisis, at the dollarization rates in Turkey was around sixty percents and in two thousand and twelve it was down to so it seemed like it

resolved issue, right. It didn't. It created a huge and various structural issues the Turkish economy is still dealing with today. One of the things that it did it was, you know, by the way, for about ten years, Turkish economy offered twenty points of real interest ring. It is prohibitively expensive. That that's why I said, you know, fixing the price of Tesla indefinitely would solve the issue of put buyers.

That that's pretty much what happened. It was so expensive that it removed almost all volatility, so it did not make sense statically, not dynamically to whole dollars, so it decreased tolarization, but it also created another issue. And for us to understand what, you know, how this issue emerged, I'm going to have to talk about the incentive structure of the economy. So the policymaker would want the economy to grow, right, because that's how you create jobs, and

if you create jobs, you get reelected. And for you to grow the economy, there two things you can do, you know, on an accounting identity based basis, you can either increase liabilities or you can increase equity. And you can, in the Turkish case, you can increase liabilities in Turkish lira or some other foreign currency. And if you want to do this, if you want to grow sustainably, you preferably, you know, want to do this in Turkish later because

you are not able to print the foreign currency. But let's say a bank issued a new loan denominating in Turkish lira. If this was a closed economy, completely closed, no exports, no importonal capital flows, there's and there's a single bank, no no reserve requirements or some sort. If there is one lira of loan issued, you have to have one lira of deposits. Right, it's it's it's an identity. There's no way there's money could escape, so there is no chance of a bank run apart from the you know,

uh sure to risk here something like that. So fractional reserve banking this is not you have complete matching events is liability in currency. The problem is there might be some bleeds in the structure. So let's see you issue it a loan. It might turn into dollar deposits by households. It might go to dividend and net dividend and interest rate payments abroad. It might pay for your imports. You might get influence from exports. This adds too, there's this

issue for capabling flows and out flows. And I include f d iron here as well. So if you notice what I described, the last four or five components of this equation is precisely the balance of payments equation. So that means if you issue a little loan and you burn reserves, you will have fewer lit deposits than you have little loans. And there are three bonus of this bouncier payments equation, and in d M there are only two. That matters. You have foreign capital inflows and outflows, and

you have imports and exports. In the Turkish case, there's a crucial third component that is dollarization. I'm going to explain how these two are impossible to balance. At the same time. Some folks are calling this the fear of floating. I think, I mean they're presenting it as a choice. I'm arguing that this is not a choice. This is simply a result of this structure. If you have this structure, you have no other choice, then you know, go for

fear of fear of floating. So let's say you want to solve the issue of dollarization, and to do that, if you want to go the way of fiking interest rates like Turkey did in two thousand and twelve, you have to increase it by a lot, untoven twenty points of real interest rates. When you do that, currency stabilizes,

so that that's that's good, all right. Foreign capital probably flows in because you're paying a huge amount of money for them to do that, but your exports and imports are not going to match because you now made your exports hugely expensive for others and imports hugely cheap for your own consumers. So if you try to solve with

dollarization by congrades, you'll have earrant account issues. If you try to solve euarant account issues, you know, by devaluing your currency, then you'll have dollarization issues and form capital netflorm capital issues. Capital will flow out because there's momentum, and instability breeds instability. There will be dollarization. If you want to solve form capital and flow out flow issues with let's say you hide interest rates again, you will

have the problem with Guarentt account. What I'm trying to say is if you want to take the structure given and acts as among Montrey policy maker, there is no way you can do policy growth policy based on lyra. If you want to solve dollarization, you can't grow by issuing lira loans. Issuing lieral LANs with the structured will breed instability. So what did the Turkish policy makers do to grow? They took the structure as given an act

in accordance with that, so they preferred foreign capital. If you can't issue lira loans, you can get lira sorry, foreign currency loans from abroad and invests in consume with that. And that's precisely what happened, and Turkey was able to grow on average seven percent every year in the first five six years of that period after the two thousand and one prices. The problem is, this only works when the global USD cycle works in your favor, and it

did work in Turkey's favor at the time. There was this lot of us D liquidity and that kept on going until the taper tension of two thousand and twelve. And that was the reckoning because until that moment, everybody was praising the Turkish economy. You know, Montree policy is independent, but they are still able to grow and they solve the issue of dollarization and there is no inflation. This is a successful economy, they were saying, and it did

look that way. The problem is, once that global USD cycle reckoning came, this old structure king trumbling down because now you can't get effects loans from abroad as well, you have a huge issue with form capital flows and because of this structure, you are not able to grow by issuing literal loans in a sustainable manner or either. So after that point you started to see Mr President getting more anxious, getting more restless about the Montree policy.

That's why I in the beginning said I you know look at incentives. I do not I tried to analyze incentive because it is completely a result of the incented structure. So can I just jump in here? And so just to recap, so Turkey has the stollarization problem. It's difficult for it to adjust interest rates in the way it needs to without causing some sort of current account issue.

And that wasn't a problem for a while, but then we had the Taper tantrum and we had a retreat of dollar liquidity, and suddenly this issue of dollarization really comes to the four Could you maybe walk us through what exactly are Dowan announced this week when it comes to the new um effex mechanism, this new program to try to halt the slide in the lira, and how it anticipates trying to solve that problem of using the

dollar as a tail risk hedge as you described. I mean, the most popular press covered this ethics deposit instrument the most, but there were two other things in there as well. The main piece in that package was an instrument that completely replicates the payoff structure that tailhage. So if you deposit your money and through this new instrument and the US de lira exchange rates does not depreciate more than the prevailing central bank interest rate, you're gonna receive the

central bank interest rate. But if it literally depreciates more than that interest rates, you're going to be paid for that. So if literally depreciates eight and the interest rate prevailing interest rate is fourteen percent, either the Treasury or the CBRT will cover your air quotes loss. There as I said it, it is a free call option on US

de leer exchange. If you are getting into this instrument from your usc deposit accounts, you're going to be dealing with cb r T and CBRT will be covering your loss. And if you have already a lirac condition you put your liric account money to into this new instrument, you're going to be dealing with the Treasury and they will be covering the losses. And why did they do this Probably because you know, if it's already a USD deposit, dealing with the CBRT directly is easier. It becomes a

CBRT reserve dat amounts. And if you have a Lira accounts, dealing with the Treasury is easier because you know there's nothing for the central thing to do, and it is some sort of a risk sharing program because if you know, half of the new money into this instrument comes from already US accounts and the risk comes from Turkish there accounts, the treasury will not be assuming that much risk, which

was the main discussion point in the press. I guess one of the things that people wonder is like, well, doesn't this just put pressure on the fiscal balance, taking it off the central banks balance shade, putting out on the fiscal balance. We've seen Turkish credit default swaps rise in recent days. Perhaps why does this actually fundamentally change anything rather than just as you put it, um, you know, shift risk away from the central bank to the treasury.

Joey's it works. It actually decreases I think will decrease the CDs premiums because it transforms balance of payments issue to a fiscal issue, and that fiscal issue is completely denominated in Turkish lyrists. It is something you can print and it should degrees risk in your foreign currency of liabilities.

And did it? This is the direct interpretation. If you use the framework, if you somehow solve the dollarization issue, if you if you're able to create this kitchen sync so whenever you issue new lera loans, you do you do not have to deal with the dollarization pressure. It will be the first time in I said this in the beginning, but it will be the first time in Turkish history that the growth goal of the policy maker and the price stability goal of the central bank are

not going to be in direct contradiction. So that is why I think it it is hugely risk positive. So in other words, it sounds like basically what you're saying, if I could just sort of essentially, this creates a way for Turkish household to have a tail risk hedge that doesn't involve automatically buying dollars, Yes, yes, that is yes. So can I just ask just on the fiscal question and whether or not this is going to impact Turkey's balance sheet, which has been you know, one of the

bright spots of the Turkish economy recently. So one of the perhaps unfair things about the way the world currently works is that foreign investors do have an enormous amount of power on emerging market economies in particular, and this is you know, part of the problem of what's happened in Turkey is that we have bond vigilantes or inflation vigilantes who have gotten nervous about what's happening there and

have you know, put additional pressure on the currency. So I guess my question is how is Turkey going to at foreign investors on side for a new currency stability mechanism that people are unfamiliar with and which on the surface looks like it's going to diminish the country's fiscal ability or fiscal strength. I think they're basically three scenarios. First, if the take up rate of this new instrument is low, that means the treasury is not assuming that much risk

that will be did you boy? I guess if the take up rate is high because of the current stock of foreign investment Disturkey, which which is extremely low, especially in bonds, it is almost non existent, and they I mean foreigners can almost completely lift the swaps as well. There is some amount of investment iniquities, but that is for some reason rather stable. I mean that lived through any type of crisis we had in the last four

or five years in looting the twenty eighteen prices. So if you assume that equity stock, who is going to be stable going forward? I don't think foreign investors matter that much. So that leaves dollarization and current accounts as

the determinants of reserves. Then the exchange yates. So if you if the take up rate is high and currently the Church economy is having current account surpluses, and our internal analyses show that for their first time in September, as far as I remember, Turkey had a seasonally adjusted current account surplus. This is especially positive because Turkey is a huge commodity importer and despite the global commodity prices sky racting, Turkey is able to have current count surpluses,

so that's good. That leaves the dollarization and if the take up rate is high here, that's that means the totalization issue is getting resolved. In that case you will not have ANFX pressure, so the treasury you will not have much to deal with there either. So the last case is some exogenous shock that is unpredictable. Can it happen?

It can, but I don't think this mechanism increasing the you know, pressure on the treasury and increasing the risk there is a very assessment based on the base cases. You know, the world is an interesting place. Some incredible thing might happen, but it's not my base case, let's phrase it like that. Can you just expect real quickly? You mentioned Turkey as a commodity importer. Uh, commodities are very high. Howard's current Howard Turkey currently running a current account. Surplus.

Services are induced surplus, mainly tourism. And you know, one good thing about Turkish tourism is it it's elasticity to the real effective exchange. It is pretty high. So when you depreciate your currency, you get more bank for your buck than what you have in the good side. So that is a huge positive. And if COVID is you know, if coal is not going to be a huge issue in the near future, which I think it will not be, but you know, that's a debate. Turkey will keep giving

current account of surpluses. One risk is, yeah, imports are way higher because of the community prices, but exports are higher as well because the global economy was staging an impressive recovery. If some have the global central bank moves decrease that, you know, hurt that recovery more than they decrease communty prices. Turkey might have some issues, but again that's not my space out there or anything. Come on, two prices are much more susceptible to the USD cycle

than global growth. So I'm overall optimistic about the future curan ticun of situation in Turkey. I guess my next question is when would we expect to see or would we expect to see published take up figures for the new m X plan. And then secondly, what are you watching in order to see whether or not it's working? And I realized, you know, watching the lira would be

the obvious thing to do. But are you looking at the take up figures or I don't know, maybe pressure on Turkey's foreign reserves or something like that to see whether or not, uh, this is actually pressuring Turkey's fiscal position. Well, there's one main thing I'm looking at. I mean, the equation I talked about is more or less than identity. So I look at the difference between new literal loan

shoeings minus the new deposits in Neurope. So if that is not a huge number, that means things are going well, we are not burning that much you know that many reserves. If that number is giving negative signals, that means dollarization, shoot, dollalization pressure is still there despite the current accome surplus, so that might be alarming, and I'm going to keep watching that number going forward. You know, it's interesting because earlier Tracy asked about what it would take to sort

of get foreign capital on side. But to my you know, like the question that I'm sort of wondering about is this sort of like I guess, the domestic take up. I mean, basically what Tracy just asked, this domestic take up?

How much understanding does there have to be and how much convincing from this sort of government, from banks to retail depositors, to the public to the depositors about how these new mechanisms will work, and how does the how do the banks and government establish credibility that this uh you know, this free put or this free dollar lyric call option that they're being offered is actually going to

be given to them? How is there a credibility risk on that side after such a hugely mulatile period, there is a risk of credibility deficit. The fiscal positive position of Turkey is you know, I mean, it's Tracy put it one of his biggest strengths. So that argument and the basic structure of the new instrument should suffice. It is almost a no brainer. Excuse my language, but you're

being offered lira interest rates on effects deposits. Basically, effects deposits currently pay like one and lira pays around and you are hasty against any upside in U S delera exchange, and so it is a complete no brainer. I think people will want to see, you know, their friends or and family who got into this instrument getting paid first, and after that, I think the take up rate will increase.

By the way, the Treasury Ministry today announced that, uh, there was you know, about ten billion lyrists up until now that got in to this new instrument. I don't know if they're gonna regularly publish the figures about this, but you know, we have this state at this moment. You know, one question I have. It seems to me, and I don't know if this is if I'm thinking about this exactly right, but it seems to me that it's one of these things where if it works, it

will in theory wouldn't even be necessary. So you offer these special effects hedged accounts. Basically some people have described them as like tips meat c d s and obviously, as you put it, a three dollarlier call option. But it seems to me that the in theory, if it works, you don't actually need people to transfer the money into these accounts because the existence of these accounts is essentially

stemmed the sell off. Is that a sort of like fair characterization or is that something that victory would look like? That is a completely fair characterization, and it is basically how it went in other countries that applied similar schemes, like Brazil and Israel. There's a lot of talk about, you know, what tricky is doing, has tried before and it failed, things like that. You know, I'd like to

address that because there's a crucial difference. That's why I think they diagnosed a proba right, because this is strictly limited to real people. This excludes corporates, this exclude foreigners.

Because there were some schemes in Argentina, there was some there was one in Turkey's past and like seventies or something that targeted folks living abroad, and that is a short fire way of creating a balance of payments issue because if her target group has a balance sheet denominated in a foreign currency, anytime they want to take their

money out, you're gonna have issues with your reserves. But because This is just you know, exclusively for local folks who consume goods in Turkish lyra, and you know they care about the Turkish lyra. They do not care about there. They do not have a foreign currency denominated balance sheet. That is why I think they got it right, and that is why I think this has a chance of working. Because wherever it work, like in Brazil and Israel, this is why it worked. They did not target foreigners. They

targeted to locals. They tried to solve dollarization. They did not want to attract form in flows because if you want to attract formnin flows sustainably, this is a bad way of doing that. If you want to solve dollarization. Just this word. Thank you so much that I genuinely learned a lot from that conversation. Thank you for having me. But yeah, that was great. Thanks, that was really interesting.

I felt that extremely helpful. It's pretty complicated, obviously, and you know when sometimes in all these conversations my head can hurt thinking about you know, the capital account, the current account and all this. But this idea of understanding that understanding this new scheme is like you know, a tail risk hedge. Very interesting and very definitely helped me understand the situation better. Yeah. Also your question about um sort of the less people use it, the more it

might work. That kind of reminded me of the FEDS corporate bond buying program from last year, where it actually didn't end up buying that many corporate bonds because it didn't need to. Just the promise of coming in and stabilizing the market had the effect of stabilizing the market.

But that said, it's clearly a big bet on people actually believing in this mechanism, right, and if it goes the other way, if there's a massive take up and uh, you know, the Turkish government ends up having to monetize it's funding for that, then then you could see it being a problem. This is exactly right, And I think you know, if you think about first of all, you mentioned the corporate bond buying program, also the municipal bond buying program would also put m the o MT in

the Euro Area crisis, very similar thing. This idea of like if you make a credible enough promise, you actually never have to spend any money is sort of like one of these core like ideas in uh, sort of like central banking, and it's like this too. It's like, Okay, we credibly promised to compensate you if the lyric plunges, so hold your money and lira. And if the promise is credible and everyone holds their money and lira, then you don't have the problem of the lyric plunging and

you solve the dollarization problem, which could be huge. So that's like a really interesting way that was really helpful

to think about it. But as you said just now, like it is a really big bet because the fear, it seems to me, would be you have a significant portion of the population taken up essentially like take up this insurance, but then you also have a significant portion of the population who like if they continue to dollarize in the lira, uh continue where to continue to plunge, and then the government is on the hook for this

big put option that it's given everyone or a call option. However, depending on which side of the pea trade you're talking about, then you could see it being like a very costly bed from the fiscal perspective totally. And I know you and I have both spoken about this already, but it is a little bit reminiscent of certain cryptocurrencies that tell everyone to you know, hoddle or if everyone just holds on and never sells, everyone is going to benefit. There

is a threat of that in there. They're definitely there's gay. It's gay. I mean it's exactly right because like the sort of like the game theory of crypto, it's like we all go to the one side of the payoff matrix, we all win. It does feel like there is like an element of game theory, and it really is going to seem does the government have the credibility to get everyone into this one corner of the matrix or enough

people that it stems the decline? But look like it was a huge rally in the era when they announced that, and so there is obviously litla point out some sort of like wow this potentially it could be a game changer. Yeah, um, it's working so far, but obviously we'll have to keep an eye on it. Yeah, alright, shall we leave it there, Let's leave it there. Okay. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe

wi Isn't Thal. You can follow me on Twitter at the Stalwart. Follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Followed the Bloomberg head of podcast Francesca Levi at Francesca Today and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening year