$128 bln in FX reserves met excess demand for foreign currency during pandemic: CB

$128 billion in forex reserves that were sold from the Turkish Central Bank’s (TCMB) reserves in 2019-2020 were used to meet a large amount of excess demand for foreign currency during the COVID-19 pandemic, Deutsche Welle Turkish service reported on Tuesday, citing a written explanation from the bank.

DW on Tuesday said the bank answered their question regarding the whereabouts of $128 billion in forex reserves, which was posed through the Presidential Communications Center (CİMER) on April 16, over seven months later on November 29.

According to the reply sent through CİMER, the bank claimed that $128 billion had been used to meet the foreign exchange liquidity needs of the real sector, financial sector and public institutions during the pandemic, which “caused an unprecedented crisis in the world, forcing all countries to take extraordinary measures.”

“As in other developing countries, a high demand for foreign currency emerged in the economy due to increased capital outflows, decreased direct investments and the rapid contraction in tourism and exports in this period. In addition, the pressures created by the current geopolitical conjuncture have brought macroeconomic stability to the fore. This has led to the necessity of meeting the need for foreign currency liquidity in the economy,” DW quoted the bank as saying.

“For these reasons, processes have been carried out within the scope of maintaining financial stability, financing the stability of payments and foreign exchange supply-demand dynamics,” the bank added.

Mustafa Elitaş, a group deputy chairman from the ruling Justice and Development Party (AKP), in late October made a similar explanation as to the whereabouts of the $128 billion sold from the central bank’s reserves in 2019-2020, but it failed to satisfy opposition lawmakers since the first case of COVID-19 in Turkey was recorded on March 11, 2020.

Although President Recep Tayyip Erdoğan and his monetary policymakers have been trying to downplay the issue, the public, experts and the main opposition Republican People’s Party (CHP) along with another opposition party, the İYİ (Good) Party, have been calling on Erdoğan and his AKP government to explain what happened to the central bank’s $128 billion in foreign reserves.

Opposition parties turned “Where’s the $128 billion?” into a political slogan after the central bank used vast sums to try and support the lira when it fell to historic lows against the dollar and euro over the past two years.

The president claimed in a statement in late February that a significant part of the forex reserves, which dropped sharply under the watch of his son-in-law and then-finance minister Berat Albayrak, were used to enable the country to overcome the pandemic with minimal damage.

“They’re hung up on where the money is. The money is in the people’s Treasury and the central bank. Nothing was lost,” Erdoğan also said on March 10, in reference to the opposition politicians.

However, Erdoğan’s remarks didn’t reflect the truth, media reports said at the time, since the TCMB’s net forex reserves were at their lowest level since 2003 of $10.68 billion as of April 2, according to bank data, and its outstanding swaps stood at $41.116 billion, which meant the reserves were in deeply negative territory once the swaps were deducted.