By James M. Dorsey
When Turkish finance minister Nureddin Nebati this week announced plans to encourage households to convert their gold holdings into Turkish liras in a bid to shore up Turkish central bank reserves, he was targeting people like Esra G.
Ms. G., whose last name has been abbreviated to preserve her anonymity, has had a life-long troubled relationship with gold. When she was barely three years old, her distaste for it as an adornment was already so strong that she dumped all her gold rings, bracelets, necklaces, and earrings into the Bosporus.
Nonetheless, Ms. G. grew up to be an avid collector of gold, including an assortment of five- and 10-gram Credit Suisse coins. As a young woman, Ms. G. preferred antique silver jewelry and wouldn’t wear gold but kept her gold collection under her pillow.
"Gold is a tradition. It grows out of a deep-seated distrust of governments and currencies and has been handed down from generation to generation. They didn't take money. They took gold," she said. "I'm a child of that system. ... I want the gold where I can touch it and feel it."
It is the many people like Ms. G. that Mr. Nebati is targeting. The minister told investors in London this week that he hoped his scheme would convert 10 percent of the estimated US$250-300 billion worth of gold squirreled away in the homes and back yards of Turkey, much of it by women.
Ayse Esen, head of a leading Turkish gold refinery, shared Mr. Nebati's estimate. "We are aware of the fact that there is around 3,000-5,000 tonnes of gold saved under mattresses, which amounts to an informal economy with a size of $200-300 billion," Ms. Esen, CEO of Istanbul Gold Refinery (IAR), said.
According to the World Gold Council, official Turkish gold reserves dropped from a high of 583 tonnes in July 2020 to 392 tonnes a year later.
Speaking to Sabah, a pro-government daily, Ms. Esen, probably unwittingly, suggested that convincing Turks to convert their gold could prove to be an uphill battle. She noted that a program launched ten years ago by the refinery and commercial banks had so far netted a mere 100 tonnes of hidden gold.
Lack of confidence in the government is only part of the problem. As important is the fact that much of Turkey's gold hoard is non-negotiable because it is held in the form of jewelry. Turkey's 40,000 jewelers turn approximately 150 tonnes of gold into jewelry a year.
Mr. Nebati reportedly told investors that some 30,000 gold shops would purchase privately held jewelry as part of his scheme and sell it to one of five government-contracted refineries that are believed to include IAR. The refineries would convert the jewelry into bullion that could be added to the central bank’s reserves.
It's not clear why Mr. Nebati believes his scheme would work this time around when earlier attempts failed. One such effort involved creating a facility that allowed holders of gold to deposit it with banks in exchange for gold certificates that would have been negotiable on a gold exchange.
Ms. G., the woman who doesn't like gold jewelry, vowed already decades ago that she would never trust a bank with her gold, even though she doesn't hesitate to deposit money in a bank.
She, like many Turks, is historically suspicious of authority, and many of them see hoarding gold not only as a safe investment but also as a reserve that can't be taken away from them. It also doesn't violate the Islamic ban on interest.
In the early 19th century, Turks hoarded gold to evade Ottoman taxes, which were based on what taxpayers physically possessed when the tax collector came around. As a result, Ottoman subjects bought gold and buried it not to be counted and taxed. Despite the Ottomans' later introduction of paper money, Ottoman subjects continued to view gold as their most secure form of investment because of inflation.
"People did not trust it,” said a gold trader. "The certificate had no relationship to the gold. It was devalued by inflation, and people have distrusted paper money ever since. . . . Gold has become a symbol of distrust of the state."
"I've been in this business for decades and have seen a lot of change. One thing never changes, and that is gold. Our money is worthless; gold is much better. Besides that, gold is part of our history," added a jewelry repair shop owner.
Trust as much as tradition may prove to be Mr. Nebati’s Achilles heel.
By attracting hidden gold, Mr. Nebati aims to help the government stop the freefall of the Turkish lira, which lost more than 40 percent of its value last year and halt the spiralling out of control of inflation that last month hit 36.1 per cent.
Many blame the crisis on President Recep Tayyip Erdogan’s idiosyncratic push to cut interest rates based on his unorthodox belief that this would lower consumer prices.
As a result, a whopping 75 per cent of respondents in a survey in December by Metropoll, a Turkish polling company Metropoll, said their trust in the government’s economic policies had decreased. More than half of those polled said they disapproved of Mr. Erdogan’s performance.
Mr. Erdogan has undermined the independence of the Central Bank, fired three of its governors and other officials opposed to his interest cuts in the last two years, changed finance ministers four times since 2018, and spun conspiracy theories by blaming a mysterious foreign interest cabal for Turkey’s economic plight.
Public distrust recently manifested itself further in a wave of protests over massive electricity price hikes as millions struggle to pay ballooning bills and inflation threatens to force businesses into bankruptcy.
Mr. Erdogan has recently suggested that he would halt or slow down the lowering of interest rates as a series of emergency measures helped the lira recover some of its value against the dollar.
The measures pushed Mr. Erdogan’s approval rating up by two points to 40.7 per cent in January, still far behind the 54.4 per cent who evaluate the president’s performance negatively.
Polls show that Mr. Erdogan would lose to Ankara Mayor Mansur Yavas and Istanbul Mayor Ekrem Imamoglu - both from the main opposition Republican People's Party (CHP) and Iyi (Good) Party Chairwoman Meral Aksener, at the next elections.
Mr. Erdogan’s numbers hardly project the degree of confidence that Mr. Nebati is likely to need to persuade his intrinsically skeptical compatriots from parting with their precious gold.
Said a former Istanbul banker: “People are unlikely to put their holdings at risk for a scheme that does not guarantee their ability to preserve whatever wealth they have. Certainly not at a time of economic turmoil and a widening gap in trust.”
Dr. James M. Dorsey is an award-winning journalist and scholar and a Senior Fellow at the National University of Singapore’s Middle East Institute.