Turkey’s plan to bring money back into the lira is a clever appeal to the retail savers now driving the currency’s gyrations. If it doesn’t work, though, the country’s entire banking system could be compromised.
While it has still fallen 40% against the U.S. dollar this year, the lira is up almost 20% from a week ago, following Monday’s announcement by President Recep Tayyip Erdogan that holders of lira deposits will be compensated for currency losses. Mr. Erdogan has repeatedly refused to allow the central bank to raise interest rates. This is a backdoor way to achieve the same result—only with the Treasury, rather than borrowers, footing the bill.