Turkey has backtracked on plans to use bonds to guarantee new lira accounts indexed to foreign exchange rates, Bloomberg reported on Friday.
In an effort to halt the rapid decline in value of his country’s currency, Turkish President Erdoğan announced last month a deposit mechanism that aims to encourage local savers to hold liras rather than U.S. dollars.
The scheme offers a minimum annual interest rate of 14 percent on lira deposits, as well as additional income to match any losses the currency suffers against the dollar greater to that amount, but it has not yet been ratified in law amid question over how it will be financed.
The lira has experienced significant volatility in recent months, losing nearly 45 percent of its value in 2021.
Under initial plans submitted to parliament, the Turkish Treasury and Finance Ministry was set to issue specially created bonds to compensate banks for additional interest paid to savers over the lira’s depreciation, Bloomberg said.
By relying on bonds rather than cash for the payments, government lawmakers had hoped to limit pressure on the central bank’s liquidity amid concerns about the already fragile public finances being exposed to further liabilities.
“The treasury may not have enough cash at any given time,” the news agency cited ruling Justice and Development Party (AKP) deputy Cemal Öztürk as saying early on Friday. “Therefore the regulation paves the way for payment in government bonds.”
However, speaking to Bloomberg later in the day, Öztürk said the clause on bond payments would be removed from the draft bill as a means of “eliminating uncertainties” over how banks would be compensated.
Meanwhile, the deposit scheme has so far attracted little interest from savers, with preliminary data showing it had attracted to only about 84.05 billion liras ($6.33 billion) worth of capital in its first two weeks.
That is equal to around 1.7 percent of Turkey’s total bank deposits of 4.87 trillion liras reported by the banking watchdog for Dec. 24.