Turkey Cash Headache Shows Inflation Fight Is Getting Physical

Years of runaway inflation are testing the physical limits of Turkey’s cash-centric economy as its biggest banknotes become increasingly inadequate to cover even daily spending.

The highest-denominated bill, for 200 liras ($5.80), now represents more than 80% of all cash in circulation, up from 16% in 2010, according to central bank data. 

After losing almost all its purchasing power, each note is worth enough to buy two filter coffees at Starbucks. In 2010, the bill was equivalent to almost $140. 

The shift is visible at Istanbul’s iconic Grand Bazaar, where heavy-duty trolleys and makeshift suitcases line the alleys outside foreign-exchange shops, waiting to transport the increasing volume of banknotes required to trade.

Some bank branches get through so much cash they have to fill their teller machines up to three times a day, Ekonomi newspaper reported on Monday, citing bankers it didn’t identify. ATMs are expected to stop offering notes below 100 liras soon, it added.

The need for earsing operations

Issuance of higher-value banknotes would ease operations within the banking system, a bank executive told Bloomberg. The denomination of the new bill could be determined based on factors such as the original dollar value of the 200-lira note at its launch and its purchasing power, the executive said.

So far, officials haven’t committed to print larger notes. Central bank Governor Fatih Karahan told lawmakers in June that “analyses are continuing” on the issue. 

For Turks it’s a reminder of the 1990s, when chronic inflation ultimately forced the government to wipe six zeros from the currency to create the so-called new Turkish lira that’s used today. Annual inflation slowed to just under 50% last month, after consecutive years of high price growth that surged above 85% in 2022. 

Even with the rise of card payments since the 2005 redenomination, Turkey is still a relatively cash-centric economy, with money-transfer company Wise Plc calling it “essential” for small payments, markets and tips. 

The central bank on Tuesday announced the issuance of new 50-lira and 5-lira banknotes. 

“There’s 100% a need for larger bills,” Fibabanka CEO Omer Mert said in October, speaking in an interview with BloombergHT. “ATMs are breaking down due to bill counting.”