To understand the revolving door that faces Turkey’s central bank governors, we must understand what makes President Erdogan tick. And to do that, we have to understand Islamic finance, which is replete with theories about why interest rates should be avoided. Erdogan has made it clear that he embraces Islamic finance. Indeed, as he once clearly put it, interest rates are the “mother of all evil.” President Erdogan’s economic ideas are fundamentally rooted in charismatic, medieval texts that are far removed from the real world of today, or even yesterday.
Not surprisingly, on the first hours of trading since Governor Naci Agbal was axed, the lira plunged by 17 percent against the greenback, coming close to its all‐time low of 8.52 TRY/USD. Lira instability and weakness and associated elevated inflation are nothing new for Turkey. Indeed, inflation has ravaged Turkey for decades. The average annual inflation rates for the 1970s, 1980s, 1990s, and 2000s were 22.4 percent, 49.6 percent, 76.7 percent, and 22.3 percent, respectively. Those horrendous numbers mask periodic lira routs. In 1994, 2000-01, and most recently since 2018, the lira has been torn to shreds.