What Is Turkey’s Fault?

United States Federal Reserve Chairman Ben Bernanke spoke at the European Central Banking Conference in Frankfurt on Friday. Bernanke advised China and India to collaborate with developed nations for a fast recovery in world economy. Otherwise, he said, there are two levels of recovery occurring in the world economy and the pace of progress for less developed nations was much slower, he claimed.

Why does Bernanke criticize China and India? Because China and India deploy controlled exchange rate regimes. This means that they help their merchandise exports to gain competitive power by undervaluing their currencies. So, they export more and import less.

However, does Bernanke’s exchange rate regime differ from China’s or India’s? No. The strange part of the situation is that he coins money through a floating exchange rate and helps U.S. merchandise exports gain competitive power by undervaluing his currency too. He is actually not very innocent with regard to the policy he criticizes.

Let us move to Bernanke’s assessment of Turkey … Bernanke notes that Brazil, Turkey and the Republic of South Africa, all of whom have implemented managed floating exchange rate systems, are carrying a double burden, and that those three countries are at risk because of China and India. Is that the complete reality of what the world economy is experiencing today? No, it is not.

The methods of depreciation that the U.S implements and the protectionist policies that rich countries put into practice adversely affect developing nations, including Turkey. The U.S. and European Union protectionist policies not only decrease the growth rates of Brazil, Turkey and South Africa such that their unemployment rates increase; they also cause these countries to borrow more money by increasing their current deficits.

In summary, when Bernanke blames China and India for the slow recovery of the world economy, and for causing risk in countries like Brazil, Turkey and South Africa, where there are managed currency regimes, he leaves the liable party in the dark. Why? Because he is the liable party. The global financial crisis arose in the American market, not in China or India. As the Chinese say in a proverb, “He is the sick one but he wants someone else to take medicine.”*

So, what should Turkey do, a country which Bernanke said is carrying a double burden?

Turkey does not have to carry a double burden in the currency wars between China and the U.S. Our “independent” Central Bank should read Bernanke’s statements and plan what kind of currency and rate regime it will follow as soon as possible.

Just because others will say “bravo on fully implementing a floating exchange rate system,” it is not logical to follow a “high interest, low currency rate” policy and cause additional increases in the unemployment rate in Turkey, with its youthful population.

* Translator’s note: The translation for this Chinese proverb could not be found.