Turkey is a country that has been plagued by severe inflation for years. Inflation in the country of President Erdogan also rose to over 85 percent this year. In that respect, it is no surprise that Bitcoin is extremely popular in Turkey. People there naturally start looking for alternatives in a kind of panic. Could the digital Turkish lira be?
No solution
In principle, a digital version of the fiat currency is of course no solution to inflation problems. On the contrary, if Turkey sets up its currency properly, it may even become more difficult for people to escape inflation. In the short term, this may lead to fewer people fleeing to other assets and curb inflation somewhat, but in the long term it is not a good thing for the people.
New pilots are planned for the first quarter of 2023 for the digital version of the lira. The Turkish Central Bank is planning to to expand the digital lira with a select group of banks and fintech companies. Other countries working on the release of a central bank digital currency (CBDC) are Kazakhstan, Japan, India and of course China.
Besides, we have yet to see it all. In 2019, people were already shouting that the Turkish government was almost done testing the digital lira. We are now more than three years later and the coin is still not quite there. That makes you think about how close we really are to central bank digital money.
Threat to Bitcoin?
Many people who are not really into the matter expect central bank digital coins to be a threat to Bitcoin. That is of course not the case. Bitcoin is valuable because of its absolute scarcity of 21 million units, not necessarily because it is a digital form of money. It is precisely the reliability of that scarcity that makes Bitcoin a valuable alternative to, for example, the euro, especially when it comes to savings.
There is virtually zero chance that central banks will allow their digital fiat coins to compete with Bitcoin in terms of scarcity. They may prohibit buying more than a certain amount of Bitcoin per day, week or month. That would be a way to prevent people from fleeing from fiat money to alternatives like Bitcoin.