Growing global links mean Turkey’s lira crisis poses risk to world economy
Turkish government has so far refused to employ the traditional remedy of sharply raising interest rates
The escalating political dispute between the United States and Turkey, along with the sharp drop in the value of the Turkish currency, the lira, have captured front-page headlines in recent days. The political dispute threatens to realign major alliances while the drop in the lira threatens to undermine the global economy if it continues.
The lira stabilised against the US dollar on Tuesday just above the all-time low posted early Monday, but most analysts believe the crisis is not yet over.
1. What impact could the drop in the lira have on consumers in Hong Kong and New York?
The Turkish economy is relatively small – only about 1 per cent of global gross domestic product. But thanks to the globalisation of financial markets, decisions in Ankara can affect jobs in the rest of the world.
The growing interconnectedness of the world economy means that the recent sharp decline in the value of the lira poses risks for other fragile emerging market economies, which in turn pose risks for the developed world.