US embassy cable - 04ANKARA5553

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. 
 
 
--------------------------- 
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