The Central Bank of Turkey is preparing an expanded toolkit to protect the lira from fluctuations related to the conflict in Iran, including the possibility of taking advantage of the country's gold reserves.
According to many well-informed sources, the Central Bank of Turkey has discussed the implementation of gold-for-foreign currency swap transactions in the London market.
In the past decade, Turkey has been one of the strongest gold buyers in the world, as leaders are seeking to reduce dependence on USD-valued assets. aggregated data shows that as of early March 2026, the country's gold reserves are equivalent to about 135 billion USD.
It is estimated that about 30 billion USD of Turkey's gold reserves are deposited in the Bank of England, and "can be used for foreign exchange intervention purposes without logistical obstacles," according to a report by economist Fatih Akcelik of JPMorgan.
Turkey is particularly vulnerable to inflation shocks and the risk of the balance of payments if the conflict in Iran lasts, as the country has to import almost all of its oil and gas. Inflation in Turkey is at 31.5%, according to the latest data released in February, among the highest in the world.
The Central Bank of Turkey's inflation reduction strategy mainly relies on maintaining the real price increase of the lira, that is, not allowing the currency to depreciate faster than the monthly inflation rate. However, the sharp withdrawal of reserves and soaring import costs in the weeks since the Iranian conflict broke out have made the policy of maintaining lira stability ineffective.
Faced with the Middle East shock that caused oil prices to skyrocket from about 70 USD to over 100 USD/barrel, Turkish policymakers tightened liquidity, causing borrowing costs in the lira to increase, and directed state-owned banks to intervene in the foreign exchange market.
The Central Bank of Turkey also sold foreign currency bonds of other countries, including US Treasury bonds. It is estimated that this agency has sold about 16 billion USD in recent weeks. As of the end of January, the amount of US bonds held by Turkey was under 17 billion USD, a sharp decrease compared to the peak of 82 billion USD in 2015.
In the opposite direction, foreign investors are stepping up selling off Turkish government bonds, at the fastest pace ever recorded in the week ending March 13.
The lira fell 0.1% to 44.35 lira/USD at 4:17 PM on March 24, local time. Since the beginning of the year, this currency has fallen by an average of about 0.05% per day.
