Nations have been minting their own currencies for thousands of years, and individuals in most countries are used to using currency as a medium of exchange. In most countries, pieces of paper are readily exchanged for goods and services. When checks or bank drafts are used, the symbolic use of currency is taken one step further: the checks represent the currency that represents the value of the thing in question. So long as governments are secure and able to back their currencies, this system works well. When governments fall, the currency becomes as worthless as the paper it is printed on.
Because each nation issues its own currency, each currency is worth something different in relation to every other currency in the world. Nations which have strong economies generally have strong currencies, which is why today's currency markets are dominated by the yen, the American dollar and the mark. At some point in history, enterprising traders devised ways to trade not in goods or services from one country to another, but in the currency of various countries. This research considers recent economic events in Turkey, the effect on the currency, and the macroeconomic explanations for these events.
Turkey has been courting the International Monetary Fund (IMF) and other international lenders since the early months of 2001 when it suffered a significant (40 percent) devaluation in its currency. The currency devaluation is attributed to failure by the government to enact reforms that the country earlier agreed to with the IMF and World Bank. This program, which was to be implemented over a three-year period, began in January 2000. One year later, the Turkish government was unable to press forward with the necessary reforms and the devaluation (as measured against the American dollar) took place within a few short weeks (Pope, 2001a, p. A12).
The fall of the lira (the Turkish currency) was precipitated by the disinflation progra...