Turkey’s central bank has spent tens of billions of dollars in foreign exchange and gold reserves in recent weeks to stabilize the lira amid market pressure triggered by the war on Iran, according to international and local reports.
Turkey’s central bank sold 52 tonnes of gold and also engaged in gold swaps after the outbreak of the conflict, measures worth about $20 billion in total, the Financial Times reported Wednesday, citing the Metals Focus consultancy. The move was aimed at boosting dollar liquidity and supporting the Turkish currency.
The sales come after policymakers had already been considering using gold reserves as a tool to defend the lira. Bloomberg reported in late March that the central bank was exploring gold-for-foreign currency swap transactions in international markets, as part of broader efforts to shore up the currency.
Turkey had gold reserves worth about $135 billion earlier this year, making it one of the world’s largest official holders. Analysts say the sizable stockpile has given policymakers room to generate hard currency during periods of market stress.
At the same time the central bank has intervened heavily in foreign exchange markets. More than $30 billion has been spent from reserves since the start of the war, Bloomberg reported, citing QNB Bank economists. Separate calculations by QNB analysts cited in Turkish media put total foreign currency sales at around $49 billion.
The combined interventions reflect the scale of Turkey’s efforts to defend its currency as geopolitical tensions weigh on investor sentiment and trigger capital outflows.
The gold transactions, which included both outright sales and swap operations, increased supply in global markets and contributed to a sharp drop in bullion prices, according to the Financial Times.
Analysts say the shift reflects a broader change in central bank behavior, as some institutions move from being net buyers of gold to sellers.
In Turkey’s case, the central bank has drawn on its substantial gold reserves to generate hard currency at a time of heightened demand for dollars. Economists say such measures are typically used to maintain currency stability during periods of volatility.
However, the interventions have come at a cost. Net international reserves excluding swaps — a key indicator of readily available funds — have declined sharply in recent weeks, according to market estimates, showing growing pressure on the central bank’s balance sheet.
While headline reserve figures have been supported by swap agreements with domestic banks, analysts caution that such funds are effectively borrowed and do not represent a lasting improvement in reserve strength.
Turkey had attracted strong foreign portfolio inflows earlier in the year, but much of that has reversed amid rising geopolitical risks, prompting the central bank to step up its interventions.
The market turbulence follows the outbreak of the US-Israeli war on Iran in late February, which has heightened tensions across the Middle East, pushed energy prices higher and increased uncertainty for emerging economies.
As a major energy importer, Turkey is particularly vulnerable to rising oil and gas costs, which can fuel inflation and increase external imbalances.
The interventions show Ankara’s priority of maintaining currency stability as part of its efforts to curb inflation, which stood at 30.87 percent in March, according to official data.
Turkey has faced persistent price pressure for years. Official data show annual consumer inflation has remained in double digits since 2019 and climbed above 75 percent in May 2024 before starting to fall.