Cablegate: Turkey to Launch New Currency

This record is a partial extract of the original cable. The full text of the original cable is not available.

281256Z Sep 04

UNCLAS SECTION 01 OF 02 ANKARA 005553

SIPDIS

SENSITIVE

TREASURY FOR OASIA - ADKINS

E.O. 12958: N/A
TAGS: EFIN ECON TU
SUBJECT: TURKEY TO LAUNCH NEW CURRENCY

SENSITIVE BUT UNCLASSIFIED.

1. (SBU) SUMMARY. THE TURKISH CENTRAL BANK (CBRT)
AND GOVERNMENT HAVE LAUNCHED A MAJOR PUBLIC RELATIONS
CAMPAIGN TO SMOOTH THE INTRODUCTION OF THE "NEW TURKISH
LIRA" (YTL) ON JANUARY 1, 2005. TURKISH OFFICIALS
EXPECT QUICK ADOPTION OF THE NEW CURRENCY, ONE UNIT OF
WHICH WILL BE EQUIVALENT TO ONE MILLION "OLD" TURKISH
LIRA. FURTHERMORE, THE CENTRAL BANK-ORGANIZED CAMPAIGN
WILL TARGET POSSIBLE NEGATIVE SIDE EFFECTS FROM THE
TRANSITION PERIOD SUCH AS PRICE INCREASES FROM ROUNDING-
OFF. THE GOT IS USING THE INTRODUCTION OF THE NEW TL
TO HIGHLIGHT ITS SUCCESS IN THE REDUCTION OF INFLATION
SINCE THE 2001 FINANCIAL CRISIS. END SUMMARY.

2. (U) IN A SEPTEMBER 24 PRESS CONFERENCEHELD
SEPTEMBER 24, CENTRAL BANK (CBTR) GOVERNOR SUREYYA
SERDENGECTI ANNOUNCED THE LAUNCH OF A NATIONWIDE
INFORMATION PUBLIC INFORMATION CAMPAIGN TO INTRODUCE
THE "NEW TURKISH LIRA" (YTL). THE NEW CURRENCY WILL GO
INTO CIRCULATION ON JANUARY 1, 2005 WITH ONE YTL
EQUIVALENT TO ONE MILLION OF THE CURRENT TURKISH LIRA
(TL) (1,000,000 TL = 1 NTL). AFTER A FEW YEARS "NEW"
WILL BE DROPPED FROM THE NAME OF THE CURRECY AND
TURKISH MONEY WILL BE KNOWN AS "TL" AGAIN.

------------------------
WHY A NEW CURRENCY UNIT?
------------------------

3. (U) TURKEY'S DECADES OF HIGH INFLATION WAS
REFLECTED IN A HUGE AMOUNT AND VOLUME OF BANKNOTES IN
CIRCULATION. THE VALUE OF BANKNOTES IN CIRCULATION
INCREASED FROM TL 278.6 BILLION ON 31 DECEMBER 1980 TO
TL 7.6 QUADRILLION AT THE END OF 2002, A 27,407-FOLD
INCREASE. AS A RESULT, BANKNOTES WITH VERY LARGE
DENOMINATIONS MADE THEIR WAY INTO CIRCULATION SINCE
1981, DRIVING OUT SMALLER DENOMINATIONS. FROM 1927 TO
1980, DENOMINATIONS VARIED FROM 50 KURUS (ONE
HUNDREDTH OF A LIRA) TO 1,000 TURKISH LIRA. TODAY,
THE LIRA CIRCULATES IN DENOMINATIONS OF 250,000;
500,000; 1,000,000; 5,000,000; 10,000,000 AND
20,000,000. THE HIGHEST VALUE NOTE IS WORTH ONLY
ABOUT $14, CREATING AN IMAGE PROBLEM FOR TURKEY AND
PRACTICAL PROBLEMS FOR VISITORS, CONSUMERS, AND
BUSINESSES ALIKE. NEW BANKNOTES WILL BE ISSUED IN
DENOMINATIONS OF 1, 5, 10, 20, 50 AND 100 YTL AND
COINS WILL BE WORTH 1, 5, 10, 25, AND 50 NEW KURUS.
THERE WILL ALSO BE A 1 NEW LIRA COIN.

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CONCERNS ABOUT ROUNDING OFF
---------------------------

4. (U) IN CONVERSIONS TO -- AND TRANSACTIONS WITH --
THE NTL, CURRENT TL VALUES HIGHER THAN ONE HALF OF A
NEW KURUS ARE TO BE ROUNDED OFF TO ONE NEW KURUS.
VALUES LOWER THAN A HALF NEW KURUS SHALL NOT BE TAKEN
INTO ACCOUNT. MANY CONSUMERS AND NEWSPAPERS HAVE
EXPRESSED A FEAR THAT MERCHANTS WILL TAKE ADVANTAGE OF
THE CURRENCY CHANGE TO RAISE PRICES, AS IS WIDELY
BELIEVED TO HAVE HAPPENED WHEN EU COUNTRIES INTRODUCED
EURO NOTES IN 2001. CBTR OFFICIALS, HOWEVER, TOLD US
THEY THOUGHT THE RISKS OF THIS WERE MINIMAL, NOTING
THAT THE SIMPLE DROPPING OF SIX ZEROS REDUCED THE
OPPORTUNITIES FOR CONFUSION AND ABUSE. MANY LARGE
STORES ARE ALREADY DISPLAYING PRICES IN BOTH YTL AND
TL.

-----------------------------------------
CHANGEOVER EXPECTED TO TAKE PLACE QUICKLY
-----------------------------------------

5. (SBU) CBRT VICE-GOVERNOR SUKRU BINAY TOLD ECON
OFFICERS THAT THE BANK EXPECTS THE TOTAL COST OF THE
SWITCHOVER OPERATION TO THE ECONOMY TO AMOUNT TO AROUND
USD 160 MILLION (INCLUDING THE COST OF PRINTING AND
DISTRIBUTING NEW NOTES). OLD BANKNOTES WILL CO-
CIRCULATE WITH YTL NOTES UNTIL THE END OF 2005, WHILE
OLD COINS WILL BE REMOVED FROM THE MARKET AS OF JANUARY
1, 2005. BINAY EXPECTS 80 PERCENT OF OLD BANKNOTES TO
BE CONVERTED BY THE END OF FEBRUARY 2005. HE THOUGHT
THAT THE PROCESS WOULD BE SPEEDED-UP THANKS TO THE
RELIGIOUS HOLIDAY (BAYRAM) IN FEBRUARY 2005, SINCE CASH
IN CIRCULATION HISTORICALLY INCREASES DURING BAYRAMS.
BINAY DOES NOT EXPECT ANY PROBLEM TO OCCUR IN FINANCIAL
OPERATIONS, FINANCIAL MARKETS, OR IN TRANSACTIONS ON
JANUARY 1, 2005. HE SAID THE ISTANBUL STOCK EXCHANGE
WILL BE CLOSE ON DECEMBER 30 AND 31 FOR ADJUSTMENTS,
BUT THAT ALL OTHER FINANCIAL MARKETS WILL STAY OPEN
THOSE DAYS. HE SAID BANKS, GOVERNMENT AGENCIES,
REGULATORY BOARDS, AND PRIVATE COMPANIES HAD MOSTLY
COMPLETED THEIR SOFTWARE CONVERSIONS. BINAY ALSO NOTED
THAT HE DID NOT EXPECT ANY INFLATIONARY IMPACT ON THE
ECONOMY DUE TO ROUNDING UP. TO THE CONTRARY, HE
EXPECTED THAT PRIVATE BUSINESSES WOULD ROUND DOWN
PRICES WHEN CONVERTING INTO NEW TL DUE TO THE HIGHLY
COMPETITIVE RETAIL ENVIRONMENT -- PARTICULARLY FOR LOW
PRICE CONSUMER GOODS.

6. (U) THE MAIN YTL IMPLEMENTATION CHALLENGES ARE IN
INFORMATION TECHNOLOGY AND PAYMENTS SYSTEMS, ACCOUNTING
AND STATISTICAL INFORMATION, BANKNOTE ISSUANCE,
CIRCULATION PLANNING, AND PROVISION OF SECURE
BANKNOTES. ALSO FROM JANUARY 1, 2005, ALL ACCOUNTING
DATA WILL BE IN YTL, DESPITE THE FACT THAT BOTH TL AND
YTL WILL BE IN CIRCULATION DURING 2005.

7. (SBU) UNLIKE THE CBRT, RETAIL BUSINESSES SAY THEY
EXPECT SOME MINOR PROBLEMS IN EARLY JANUARY 2005, SUCH
AS PROBLEMS WITH AUTOMATIC CASH REGISTERS AND ATM'S.
OLD PEOPLE AND INHABITANTS OF RURAL AREAS REPORTEDLY
FEAR THAT THEY WILL LOSE THEIR WEALTH. ACCORDING TO A
PRESS SURVEY, THEY FEEL THAT THEIR ACCOUNTS AND
SALARIES WILL DIMINISH. CBRT VICE-GOVERNOR BINAY TOLD
US THAT THEY WERE AWARE OF THESE ISSUES, AND WOULD
FOCUS THEIR INFORMATION CAMPAIGN MOSTLY ON THESE
SEGMENTS OF SOCIETY.

----------------------
EUROPEAN UNION OBJECTS
----------------------

8. (U) IMAGES AND SECURITY FEATURES OF THE NEW
CURRENCY HAVE NOT YET BEEN MADE AVAILABLE TO THE
PUBLIC, BUT ARE EXPECTED TO BE MADE KNOWN IN OCTOBER.
THE TURKISH PRESS RECENTLY REPORTED THAT THE EU HAD
WARNED TURKEY REGARDING A RESEMBLANCE OF YTL COINS TO
EURO COINS THAT COULD CAUSE A PROBLEM IN TELLER
MACHINES. TURKISH OFFICIALS SAID TURKEY WAS TRYING TO
MINIMIZE THE RESEMBLANCE TO AVOID PROBLEMS. BINAY SAID
INTERNATIONAL COINAGE EXPERTS WERE STUDYING THE ISSUE
AND WOULD REPORT TO THE EU COMMISSION.

-------
COMMENT
-------

9. (SBU) THE INTRODUCTION OF THE NEW TL IS A
PRAGMATIC MEASURE DESIGNED TO MAKE THE CURRENCY LESS
UNWIELDLY. THE GOT IS NEVERTHELESS TRYING TO
CAPITALIZE ON THE INTRODUCTION OF THE NEW TL AS A
SYMBOL OF THE SUCCESS OF ITS DISINFLATION CAMPAIGN,
GLOSSING OVER THE FACT THAT THE REDUCTION IN INFLATION
HAS BEEN ACCOMPLISHED BY THE INDEPENDENT CENTRAL BANK,
RATHER THAN BY THE GOT.

10. (U) EXTENSIVE BACKGROUND INFORMATION ON
SWITCHOVER ISSUES CAN BE FOUND ON THE CENTRAL BANK'S
WEBSITE: HTTP://WWW.TCMB.GOV.TR AND AT
HTTP://WWW.YTL.GEN.TR.
EDELMAN

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