The importance of foreign reserves. Lira and Hong Kong dollars faces profound trouble due to geopolitical issues, however what makes the currency in risk differs from foreign exchange reserves. Hong Kong's foreign exchange reserves are about $450 billion, while Turkey's foreign exchange reserves are only $49 billion, about a ninth of Hong Kong's.
The depreciation of the Turkish currency is making more difficult difficult situation now because it is exposed to the risk of outflow of its currency. Turkish central bank has no choice but to sell its foreign reserve, which is running out.
Depreciation of Lira can hurt their importing industry but more severe situation can lay out of more real debt to European banks. If this situation does not stop, Turkey will face extreme inflation (term stagflation) which will make Turkish citizen in despair.
Why is it weak
The country is earning less foreign currency due to weakening tourism industry due to COVID-19 and slump of export due to lessen global demand. Recently Central Bank of Turkey has slashed about 3% of its interest rate this year to implement monetary policy. Lira has fallen 19% against US dollar this year.Source 1: Turkish Lira’s Fall Drives Concerns for Euro
Source 2: Turkish Lira Hits Another Historic Low Amid Pandemic
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