Experts say such threats are not new to the country and its banking regulator knows how to deal with such unethical financial conduct.
Turkey's currency faced a series of attacks from London-based financial institutions that engaged in the rapid buying of foreign currencies with Turkish lira, prompting the country's banking regulator to put a percentage cap on the currency swap.
So far three foreigh banks BNP Paribas, Citibank, and UBS have been blocked by Turkey's Banking Regulation and Supervision Agency (BRSA) from trading in lira with the country’s local banks.
Another immediate measure imposed was slimming down local banks’ outstanding currency swaps with counterparts abroad from 25 percent to 10 percent, BRSA said on Sunday.
But how does currency manipulation work?
Governments sell their own currencies to buy foreign currencies. By doing this, the export-oriented countries want to ensure their currencies don’t strengthen against strong currencies like the dollar, pound or euro, so they could benefit from the volume of their exports and avoid surplus reduction. Likewise if a country imports more than it exports and therefore has a trade deficit, it prefers to keep its currency stronger so that it can purchase products from other countries relatively cheaply.
In Turkey's case, what financial institutions in London did was buy Turkish lira on credit and use that money to buy US dollars. Then they purchased other currencies with the dollars that were essentially brought with Turkish lira. In this cycle, the lira begins losing its value in the market.
Speaking to TRT World, Dr Mevlut Tatliyer from Istanbul Medipol University’s economics and finance department, said such a manipulation is not new to Turkey.
In March 2019, he said, London-based investment banks had defaulted in dollar transactions and they stooped low by speculating over the lira.
"The speculators tried to buy dollars in exchange for liras and on the account of having no money to buy liras at the first place," said Tatliyer, who is also a researcher at Istanbul-based think tank SETA.
While the game of currency manipulation was going on against Turkey in London, the country was bracing for local elections. But several London-based institutions had already purchased large amounts of US dollars using on-credit liras. Once the elections were over, they could not find Turkish lira because Turkey's financial regulator, the NRSA, had already taken measures against the exchanges that had led to the depreciation of the lira.
Those foreign banks landed in default and they tried to find Turkish lira in the London market with interest rates exceeding 1,000 percent.
Is it just the Turkish lira that is being manipulated?
Tatliyer said almost every developing country deals with currency manipulation as they often land in situations when their currencies suddenly begin to lose value against the dollar.
Since the coronavirus started to hit the global economy, the Turkish lira has depreciated by 15 percent. Tatliyer said currency manipulation has only 2-3 percent impact on the Lira and is not the sole reason why the currency was losing value against the dollar.
“In the time of coronavirus, there is an incredible capital outflow from developing countries to America,” he said, adding that that factor is one of the main reasons why many currencies are weakening.
When asked whether Turkey is completely at the mercy of investors, Tatliyer said: “The fact is as much as we need investors, they need us in the same way.”
Tatliyer expects the Turkish lira will make a significant recovery against the dollar by the summer.
"We need a possible swap agreement with the US which could be helpful," he said.
The role of Turkey's central bank
Foreign currency reserves of the Central Bank of Turkey (CBT) decreased to $51.4 billion by April 30.
The gross foreign currency reserves had decreased nearly $20 billion as the novel coronavirus pandemic devastates the global economy. In this period, Turkey took several measures against the pandemic, from economic stimulus packages to financial aid campaigns for its citizens.
Tatliyer said central banks worldwide have no power to intervene in salvaging economies, in the long run, no matter how full their foreign currency reserves are.
“By putting dollars on the short-term market, you can keep the value of your own money high, but when you stop this process, the currency will reach its natural balance again,” Tatliyer said.
At the time there is an extreme capital outflow from developing countries to the US, central banks cannot prevent serious breakage.
The Central Bank's gross reserve had its historic peak in, 2013, with $115 billion.
Will Turkey’s short-term foreign exchange debt impact the economy?
By the end of February, the short-term foreign exchange debt for Turkey was about $122.5 billion where private sector constituted more than 70 percent of the debt.
Tatliyer emphasised that since a large part of these foreign debt payments are linked with the private sector, it is mostly related to foreign trade and transactions between banks where they constitute $57 billion of the short-term foreign exchange debt.
Tatliyer noted while Turkey’s short term foreign exchange debt is about $122.5 billion, current foreign currency account volume is more than $200 billion by the end of April.
For that reason, Turkey won’t have any problem paying the short-term foreign exchange debt, Tatliyer said.
On the other hand, Turkey’s account deficit is another important branch of its economy.
For this, Tatliyer explained: “Turkey gave a current account surplus in 2019, we know that there will be no current deficit in 2020. Because Turkey’s foreign trade has narrowed during the coronavirus pandemic, it means that it can give current surplus instead of current deficit.”
Tatliyer also underlined that Western media outlets are “incredibly biased" towards Turkey and their "negative coverage” is aimed at misinforming the world that the Turkish economy is in crisis.
“It will not be a problem of making import payments for Turkey at the year(2020) of giving current account surplus,” he said.