The Turkey Crisis Explained

The Lira has lost almost more than thirty five percent of its value against dollar this year prompting concerns that turkey economy which is heavily reliant foreign currency loans , could affect other emerging markets .The crisis began shortly after US president Donald Trump announce a doubling of steel aluminium tariffs  on Turkey as Washington pushed Ankara to release Evangelical Christian  pastor Andrew Brunson who is being held as prisoner on terrorism charges . Turkey president Erogan has blame the Lira’s fall due to deliberate attack from the west rather than the internal affairs of the country. Sonar Cagaptay , the director of Turkish research programme at the Washington institute said that the US had an arsenal of economic sanction ready to be deployed against Turkey, which they believe trump would escalate until Brunson is released
The crisis began with the US reducing the supply of dollars. Earlier the dollar was cheap and available in huge quantities due to which people used it to do the international transaction. The reason that dollar is used in the international transaction is that it is the most stable currency and has low foreign exchange risk and hence the transaction are indexed in dollars. The reduction in supply of dollars has lead to an increase in its value leading to depreciation in the turkey ‘s foreign exchange market as it takes more Lira to buy dollars meaning the dollar has appreciated in its value. Due to a rise in foreign exchange rate the country imports become more expensive. The country cannot stop importing as the raw materials are required irrespective of their price.  Moreover Turkey generally imports machinery, chemicals, semi finished good, fuel and transport equipments which are used as raw materials or intermediate goods in the industry to produce the goods for its citizens and abroad. A rise in prices of imports will lead to an import related inflation in the country due to which the prices will lead to an increase in prices of the goods sold to its citizen and abroad ,hence affecting the other emerging countries which are dependent on particular goods that are only supplied by Turkey. It was easily observed that the prices of general commodities in the commodity basket have risen  drastically. The general prices of bread have risen drastically affecting the standard of living of people within the country. In order to control the situation within the country the government took the most desired step to increase the interest rate so that the people all around the globe will invest in the country as it will be more profitable for them rather than investing in their domestic markets which have a lower interest rate to offer this will lead to huge inflow of dollars and hence match up the excess demand of dollars. This was supported by a move from Qatar which made an $15 billion investment which was totally to match up the supply demand difference. Since we follow the system of flexible exchange rate the increase in interest rate will lead to capital inflow which will lead Lira to appreciate and when the country will reach the original exchange rate levels the interest rate will return to the initial position ie. In line with the interest rates of the rest of the world. 
I will like to end up my blog by saying that the reduction in supply of dollars is a short term affect and will disappear when all the market around the globe will adjust to the changes, Hence in long run the markets will return to its initial position because when every country will appreciate their currencies we will be back from where we started .