WHY RED DOLLAR

After the recent economic reforms implemented by the Government of the Republic of Turkey, following their heterodox policies, it has been claimed that there is a positive correlation between the interest rate and inflation. The Central Bank and various national banks acknowledged the rising inflation and released their reserved dollars into the market in an effort to stabilize the currency exchange rate and control inflation. However, it became apparent to the free market that these measures would not yield the expected results over time.

As a result, companies involved in imports and exports decided to base their currency rates on the real exchange rate, taking into consideration the current inflation numbers, rather than the rates announced by the government. This led to varying currency rates in the market. Subsequently, the Central Bank of the Republic of Turkey initiated unofficial inspections on funds. During this period, export and import companies turned to the Grand Bazaar in Istanbul, where the largest cash flow of dollars was present.

As the amount of dollars released by the Central Bank of the Republic of Turkey to stabilize the market started to decrease, citizens began exchanging their dollars in the Grand Bazaar to obtain more favorable rates. This created a significant demand for currency exchange due to the better rates, thus giving rise to the term “red dollar.”