Why does the Central Bank buy dollars from the market?

What does it mean when the Central Bank collects foreign currency from the market through a large foreign exchange company?

The foreign exchange collection operation, which was first mentioned by economist Uğur Gürses and brought to the agenda by Bloomberg last week, still continues.

Allegedly, a well-established foreign exchange company in the Grand Bazaar buys dollars from the market far above the current price. Allegedly, he buys these dollars for the Central Bank.

As a matter of fact, the amount of cash dollars in the Central Bank’s balance sheet exceeded 7 billion dollars for the first time in years.

The most important question here is:

Why is the Central Bank collecting the cash from the market?

I asked this to a former Central Bank executive.

Without thinking, he said:

For a strong intervention in the market!

Why would a Central Bank, which already controls the dollar with backdoor operations, intervene drastically and when will it do so?

Again, the same manager replied to that question, “Turkey has entered the election process. First, they managed to keep inflation low, albeit on paper, through TUIK. It will fall even more in a few months, and 7 billion for the time being collected from the market, that day, this number may be 12-15 billion dollars, which will be used to intervene in foreign exchange. Just like the night the currency protected deposit was announced, they will try to create a drop in the dollar. There is no other meaning for the Center to get dollars from the market in this way,” he says.

Can the Central Bank drastically lower the dollar, as the former official in question said? If it drops, how much will it drop?

First of all, if the Central Bank is going to do this operation, it will do it before the election decision is taken. Because there is already a perception in the market that “the dollar falls when the election decision is taken”. All expectations are for the AKP to go. Even in the stock market, the expectations of the post-AKP are being bought.

That’s why he has to do this a month or two before he takes the election decision.

My personal opinion on the question of whether this intervention will work is in the short term. However, it is also related to the size of the intervention.

The exchange rate, which was 18 liras with market intervention with 7 billion dollars, may decrease to 16 liras, but if they cannot continue this, citizens and companies can attack cheap dollars as a new buying opportunity.

Because the Central Bank reserves are still negative despite the money coming from Russia.

This shows that if the Central Bank wants to reduce the dollar before the election, it cannot do it with 7-8 billion dollars! Even if it does, it can’t be permanent!

Leave a Comment

Your email address will not be published.