The holding of US treasuries by Turkey has gone down by almost 12% from May to June as Ankara diversifies from the US dollar.
In June, Turkey’s share of US Treasury securities dropped to $28.8 billion from $32.6 billion in the previous month, according to Zero Hedge. Since the end of last year, the country has reportedly decreased its holdings of T-bills, bonds and notes by 52 percent.
According to the US Treasury, Turkey’s holdings of bonds, bills and notes tumbled by 52% since the end of 2017, dropping to $28.8 billion in June from $32.6 billion in May and $61.2 billion at the recent high of November of 2016.
Also, in June this year, in a move which possibly paved the way for Turkey’s dumping, a US Treasury report revealed that the Central Bank of Russia had rapidly reduced its country’s holdings in US sovereign debt. It has linked the measure to increased concerns over various risks, including financial, economic and geopolitical. In May 2018, Russia’s US treasury share hit an 11-year low, however the data also showed that the sell-off had slowed down and there was no decrease in June.
The dumping took place earlier than the diplomatic conflict between Turkey and the US. The worsening of the Turkey-US relationship began due to the purchase of the S-400 Triumf system, and mostly due to the detention of American Pastor Andrew Brunson in Turkey.
Brunson is charged with assisting in the failed 2016 coup attempt, if found guilty he is facing up to 35 years in prison.
Relations between the countries started deteriorating quick after on August 1st the US introduced sanctions on two Turkish ministers, which was strongly condemned by President Recep Tayyip Erdogan’s government.
On August 10th, President Donald Trump double the tariffs on Turkish steel and aluminum. Trump commented: “I have just authorized a doubling of tariffs on steel and aluminum with respect to Turkey as their currency, the Turkish lira, slides rapidly downwards against our very strong dollar. Aluminum will now be 20 percent and steel 50 percent. Our relations with Turkey are not good at this time!”
The sanctions on the two Turkish officials, and mostly the introduction of the tariffs accelerated the dropping in value of the Turkish lira. The lira has lost more than 45% of its value this year. On August 14th its value went up by 8.4%, however on the morning of August 15th it was down 0.7%.
In retaliation, Turkey announced its decision to impose an additional 50% tax on U.S. rice, 140% on spirits and 120% on cars. There are also additional charges on U.S. cosmetics, tobacco and some food products. The decision comes after on August 14th, Turkish President Recep Tayyip Erdogan called for a boycott of US electronics, including Apple’s iPhones to retaliate to the Trump administration’s sanctions and tariffs imposed over the last few weeks to pressure Turkey into releasing the jailed pastor. To support their leader, on the same day, Turkey’s national Turkish Airlines and its main telecoms firm Turk Telecom announced that they are halting advertising in US media in response to the tension in relations between the countries.
On August 16th, US Treasury Secretary Steve Mnuchin warned that the US would impose more sanctions on the Turkish economy if Ankara does not release Andrew Brunson. “We have put sanctions on several of their cabinet members,” Mnuchin told a cabinet meeting. “We have more that we are planning to do if they don’t release him quickly.”
On the same day, the lira saw a 17% rise, which is promising, albeit its value is still lower than that of April, this comes after Ankara clamped down on currency speculation and attempted to reassure investors.
The recovery of value is also a result of a $15 billion funding package from Qatar, announced on the evening of August 15th. Tamim bin Hamad Al Thani, the Amir of Qatar, tweeted: “Today, in the framework of important negotiations with His Excellency President Erdogan in Ankara, we announced a package of deposits and investment projects worth $15 billion in this country, which has a productive, strong and robust economy.”
Turkish President Tayyip Erdogan answered in a tweet: “On behalf of the Turkish people, I sincerely thank Sheikh Tamim and the Qatari people for standing by Turkey. There is no doubt that our strong relations with the friendly and brotherly state of Qatar will continue to evolve in many areas.”
Turkish Finance Minister Berat Albayrak, who is Erdogan’s son-in-law, pledged to fight inflation and support banks, claiming that Turkey will not need capital controls or assistance from the International Monetary Fund. On August 16th, the Minister spoke to thousands of investors in attempts to reassure them.
Despite the pressure from the US, Turkey has yet refused to take any actions towards releasing the pastor. Erdogan’s government has also strongly condemned US actions, calling them interference in their interior affairs.