The Religious Roots of Turkey’s Currency Crisis

 The Religious Roots of Turkey’s Currency Crisis

Erdogan’s adherence to the Quran’s commandment prohibiting paying interest on money is destroying the lira’s value.

By Daniel Pipes

Dec. 29, 2021 6:13 pm ET

A money changer counts Turkish lira banknotes at a currency exchange office in Ankara, Turkey, Sept. 27.

PHOTO: CAGLA GURDOGAN/REUTERS

As Turkey’s economy heads into a tailspin because of the collapse of its currency, the lira, investors and economists wonder why President Recep Tayyip Erdogan has continued the eccentric economic policy that caused this crisis. He has made clear that his motivation is primarily religious.

Mr. Erdogan has dominated Turkish politics for nearly 20 years in a variety of roles—head of the Justice and Development Party, prime minister and president. Two notable features marked the first half of his rule: constant worry that the fervently secular military leadership would stage a coup, and extraordinary economic growth.

Everything changed in July 2011, when Mr. Erdogan forced the military chief of staff to quit, along with the heads of the army, navy and air force, giving him control over the armed forces. With no further fear of a coup, he finally was able to pursue fully the Islamist ideology the secular officers had tempered.

That ideology emerged quickly. Mr. Erdogan supported fellow Islamists in Syria and Egypt in 2011, provoked tensions with Israel and the West, and flirted with ditching the North Atlantic Treaty Organization in favor of the Russian- and Chinese-dominated Shanghai Cooperation Organization in 2012. Domestically, the Turkish government raised taxes on alcohol and limited sales and advertisements, and religious schools became more common and better-funded.

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When Mr. Erdogan took full control of Turkey’s central bank in 2018, he demanded, contrary to the practice of all other central banks, that it combat high inflation by reducing interest rates. At first, he tried to hide his motives. During a 2018 currency crisis, Mr. Erdogan’s adviser, Cemil Ertem, summoned the ghost of the great Yale economist Irving Fisher (1867-1947) to justify the low-interest policy. Mr. Ertem even claimed that Mr. Erdogan’s views “are the subject of contemporary scientific economic theory today.”

When media ridicule ensued, Mr. Erdogan and his aides fell silent, offering no further explanations for low interest rates as the Turkish lira declined steadily in value. This year, despite massive purchases of foreign currency by the Turkish central bank, the lira has declined from 7 per U.S. dollar in February to about 18 in mid-December. (A short-term fix has moved the exchange rate to 13, but the market appears unconvinced.)

On Dec. 19, Mr. Erdogan explained that he is crafting policy on his interpretation of the Quran’s commandment prohibiting paying interest on money: “They complain we keep decreasing the interest rate. Don’t expect anything else from me. As a Muslim, I will continue doing what our religion tells us. This is the command.” That single, disastrous remark caused the lira immediately to drop 12%. The realization that Mr. Erdogan’s policies were based on the live commands of the Quran, not the theories of a dead American economist, spooked the market.

Mr. Erdogan’s conviction about interest rates has terrible implications for Turkey. Protests and hunger are spreading, and the country could go the way of Venezuela. Duke economist Timur Kuran said the coming chaos gives Mr. Erdogan and his minions “an opportunity to declare emergency rule and stay in power despite their rising unpopularity.”

Mr. Erdogan’s “what our religion tells us” statement shows a subservience to medieval notions about finance, no matter the harm they cause. But medieval religious regulations don’t mix well with modern finance—or with almost anything. Muslim success in the modern world requires a reconsideration of Islamic laws in light of current circumstances. Quranic regulations could be interpreted to allow for reasonable interest payments while banning usurious interest.

Five hundred years ago, Jews and Christians shared with Muslims a hostility to interest payments, but they eventually came to terms with this financial necessity. Muslims must follow suit or risk more instability, repression and poverty in Turkey and other Muslim-majority countries.

Mr. Pipes is president of the Middle East Forum.