The Mystery of the Turkish Lira Depreciation: From Historical Background to Investment Opportunities

Turkish Lira (TRY), as an emerging market currency, has become one of the most volatile currencies worldwide in recent years. This persistent depreciation is not accidental but the result of a combination of policy mistrust, economic structural imbalances, and political risks. If you want to understand why the Lira remains under pressure and how to seize trading opportunities within it, this article will analyze each aspect for you.

Turkish Lira: From Historical Trauma to Current Dilemma

The Turkish Lira (Turkish: Türk Lirası) is Turkey’s official currency, with ISO 4217 code TRY. Its base unit is 1 Lira = 100 Kuruş. Currently circulating banknotes include denominations of 5, 10, 20, 50, 100, and 200 Lira, while coins are available in 1, 5, 10, 25, 50 Kuruş, and 1 Lira. The Central Bank of the Republic of Turkey (CBRT) is responsible for monetary policy formulation and implementation.

The history of the Lira is marked by intense volatility. At the end of 2001, the exchange rate soared to an extreme level of 1 USD = 165,000 TRY, forcing the Turkish government to undertake sweeping reforms in 2005—replacing 1 new Lira with 1 million old Liras. After 2009, the currency was renamed “Turkish Lira,” and the old currency was completely phased out. This history profoundly explains why the Lira remains fragile and susceptible to external shocks today.

As an emerging market currency, the Lira has relatively low liquidity in global finance, and its exchange rate is highly influenced by political changes, interest rate policies, inflation expectations, and geopolitical risks. This means that any policy misstep can quickly reflect in the exchange rate.

2025 Lira Market Review: Political Risks Intensify Depreciation Pressure

Entering 2025, the Turkish Lira’s continued weakening has become increasingly evident. At the beginning of the year, USD/TRY hovered around 35–36, but as the year progressed, the Lira depreciated to about 42 in mid-November, with a total decline of over 20% for the year.

The most volatile period was in March, when market panic was triggered by the detention of Istanbul’s mayor, causing a sharp short-term depreciation of the Lira. This incident exposed the market’s extreme sensitivity to Turkey’s political risks. Although the central bank attempted to stabilize the exchange rate by raising interest rates, high inflation and long-term structural issues remain unresolved, and the Lira continues to fluctuate within a high-level depreciation channel.

For investors, this environment exemplifies a “high volatility, high risk, high interest rate” market—full of opportunities but also traps.

Fundamental Causes of Lira Depreciation: Collapse of Policy Confidence

The core reason for the long-term weakness of the Turkish Lira is the severe depletion of policy credibility. Over the past few years, the Turkish government has persistently pursued “unconventional monetary policies”—cutting interest rates despite soaring prices. This counterproductive approach has destroyed market confidence in the independence of the central bank.

Capital flight has become inevitable. Businesses and the public have increasingly converted assets into strong currencies like USD and EUR, creating a “vicious cycle”: Lira depreciation → rising import costs → accelerating inflation → more selling of Lira → further depreciation.

The fragility of Turkey’s economic structure exacerbates this dilemma. The country relies heavily on imported energy and raw materials, which must be settled in USD. As the Lira depreciates, import bills swell, pushing up domestic prices. Unstable international relations—including local election risks, policy shifts, and international disputes—lead foreign investors to adopt a more cautious stance toward Turkish assets, further weakening demand for the Lira.

In short, Lira depreciation is not a short-term phenomenon but a systemic issue. Unless there is a significant improvement in the policy framework, this pressure is unlikely to ease in the medium term.

Exchange Rate Trends Analysis: Three Major Currency Pairs Outlook

USD/TRY: Short-term Volatility, Medium-term Pressure

In mid-November, USD/TRY traded between 10.0 and 10.2, influenced by the central bank’s upward revision of year-end inflation forecasts. In the short term, the December central bank meeting may announce a rate cut, which could exert new depreciation pressure on the Lira. Expect USD/TRY to fluctuate between 10.0 and 10.5 over the next 1–3 months, with a psychological support level near 10.5.

EUR/TRY: Following the Euro, Relatively Mild Fluctuations

In mid-November, EUR/TRY traded between 10.7 and 10.9. If the Euro remains relatively strong, the depreciation pressure of the Lira against the Euro will be moderate. In the short term, it may test resistance around 11.0–11.2, but the volatility will likely be less intense than USD/TRY.

TRY/TWD: Tourism Exchange Reference

In mid-November, 1 TRY was approximately 0.23–0.24 TWD. The relatively strong New Taiwan Dollar amplifies the depreciation effect of the Lira. With increased travel between Taiwan and Turkey around the Lunar New Year, demand for currency exchange may push the rate higher in the short term, but the medium to long term will still be dominated by USD trends.

Comparison of Investment Methods for the Turkish Lira

For investors interested in participating in Lira trading, there are mainly three options:

Bank Exchange Method: Lowest threshold, minimal risk, but extremely poor liquidity. Some Taiwanese banks offer reservation services for Lira cash, with the advantage of zero leverage and transparent procedures; disadvantages include large exchange spreads, 1–3 working days for cash preparation, and most banks do not provide TRY. This method is suitable only for actual travel needs and unlikely to profit from appreciation.

Futures Trading: CME offers USD/TRY futures (symbol 6M), with a standard contract nominal value of 100,000 TRY. However, such currency futures are extremely niche, with scarce trading volume and low liquidity. Most brokers do not open these to retail investors, making actual participation very limited.

CFD (Contract for Difference): Currently the most flexible option. CFDs allow trading with lower margin requirements, starting from as low as $50, with 24-hour trading. You can go long or short on USD/TRY, EUR/TRY, JPY/TRY, etc. Compared to the previous two methods, CFDs offer more currency pairs and more effective risk management tools.

Practical Currency Exchange Guide for the Lira

Taiwan Exchange Channels: Bank of Taiwan, Mega International, Hua Nan Bank, etc., offer reservation services for cash. It is recommended to contact and confirm stock availability at least one week in advance. Taoyuan and Kaohsiung airports also have exchange counters, but rates are far worse than banks and are only for emergency use. The Lira is not a popular currency in Taiwan, and some branches may have no cash available.

Local Usage Tips: Use cash for small expenses (dining, transportation), and credit cards for larger purchases. Kuruş coins can be used for buses, tips, or small transactions; local merchants rarely accept TWD coins for exchange. Price references: coffee 15–25 TRY, local cuisine 50–100 TRY, which can be used to estimate your budget.

Pitfall Warnings: Street exchange points claiming “zero fees” often hide hidden costs, with actual rates 10–20% worse than official rates. Fake bills are rare, but always check the integrity of cash when receiving notes. Tipping culture is about 10% of the bill; when paying in cash, round to the nearest whole number.

Investment Decision Framework for the Lira

Based on the 2025 market environment, the Turkish Lira remains a high-risk currency. Although the central bank is attempting to curb inflation through rate hikes and financial reforms, structural issues such as low policy credibility, high political uncertainty, and deep reliance on imports have not been resolved, putting long-term depreciation pressure on the Lira.

Recommended Investment Approach:

First, the Lira is suitable only for short-term trading of volatility. Since TRY often fluctuates around 10% within a month against the USD, experienced forex traders who can analyze event-driven movements may treat the Lira as a high-volatility trading instrument.

Second, long-term holding is not recommended. The Turkish Lira’s long-term trend is downward, with occasional rebounds. Profiting from appreciation is extremely difficult and risky.

Third, consider staggered positioning to diversify risk. If optimistic about Turkey’s reform prospects, use USD to buy small amounts of TRY in batches, and combine technical rebounds for short-term trades, avoiding all-in positions or long-term asset holdings.

Key Dates and Risk Signals

Pay close attention to the December 15 Turkey central bank rate decision—its rate cut magnitude will directly determine the short-term exchange rate direction. The inflation data in March 2026 will be a key window to verify reform effects.

Risk signals to watch include: if the Istanbul Stock Exchange banking index drops more than 5%, it often indicates accelerated foreign capital withdrawal, which could lead to rapid Lira depreciation.

Overall Assessment

Although the Turkish Lira is not widely followed by retail investors, its trend is clear, and the factors influencing a trend reversal are well-defined, making it a noteworthy trading target. Investors should choose appropriate trading methods and products based on their risk tolerance and investment preferences, while closely monitoring overall economic and political news to improve judgment accuracy. Regardless of the approach, rational risk assessment always comes first.