Inflation: a tale of two countries

This week we are taking a thorough look at what’s happening in Turkey and what similarities it has with South Africa’s past, present and potentially, it’s future. 

Let’s take a look at the Turkish Lira against the US Dollar, over the past five years:

I’ll discuss what the fundamental causes for the incredible inflation we’re seeing in Turkey are and draw some similarities against South Africa. 

There are striking similarities between Turkey’s current situation and South Africa’s past, present and perhaps future. There’s also quite a lot of scope to discuss, so I will try my best to encapsulate it – with clear references in case you might want to read further. 

How did Apartheid really fall?

Firstly, let’s take a look at South Africa’s past with reference to RW Johnson’s two books:

1. How long will South Africa Survive? (1977)

2. How long will South Africa Survive?: The Looming Crisis (2015)

Another book about Zimbabwe:

3. When money destroys nations: How hyperinflation ruined Zimbabwe, how ordinary people survived, and warnings for nations that print money (2020) by Philip Haslam and Russell Lamberti

And a fascinating paper by Jannie Rossouw and Vishnu Padayachee

4. The Independence of the South African Reserve Bank: Coming full circle in 25 years?

These are all great reads and a plethora of sound points are covered in all of the works. There is a distinct relationship between all of them; that direct manipulation with central banks leads to chaos. 

In two of the works’ opinions (and mine), this was the true cause for the downfall to the Apartheid government. 

The authors come to a similar conclusion that the Apartheid government controlled the Reserve Bank in an ‘extremely discretionary’ manner. ‘The bank and its stakeholders focused on price stability to be modified by exchange rate and economic growth objectives’. 

By delinking the Rand to the Dollar, introducing manipulative & direct policies to an independent institution, the Rand reached its lowest level to the Dollar soon after. Not even the strong price of Gold could save the Rand. 

By increasing manipulation, through rate control, money printing and other methods – the rest of the world lost faith in the currency. This was the ultimate catalyst that eventually led to the implosion of the Apartheid system. This notion is strongly supported by Johnson.

What’s happening in Turkey now?

The Turkish central bank is the standard ‘Reserve Bank’ entity and was seen as ‘independent’. 

However, President Erdogan has been a very busy man the past few years, and has been the architect for 5 Central Bank chairmen in the past 5 years. Many see Erdogan as the real chairman in disguise. 

The main reason for Erdogan’s direct interference is his lust for artificially lower interest rates which allows better credit provision to the corporations and leeches at the top of the chain, closest to the money printer. His narrative, however, is: ‘I reject policies that will contract our country, weaken it, condemn our people to unemployment, hunger and poverty.’ He wants citizens to get credit at a lower rate, obviously. Unfortunately, in the real world, the Cantillon effect doesn’t allow that to happen. 

@1971Bubble, who we are having a discussion with this week explains:

This manipulation of the ‘independent’ institution has had a massive impact on the currency and the global trust in their central bank.

‘..Turkey is a country with a net trade deficit and is dependent on exports priced in foreign currencies… decreasing interest rates lowers the Turkish Lira’s value, causing inflation, and inflation results in a need for hiking interest rates again.’

Due to all of this, Turkey has quadrupled their M2 money supply since 2015:

And annual inflation has moved from 8% in 2019, to 20% in 2021. 

The latest figures show that Turkey has close to $170Billion of ‘mainly dollar-denominated debt’. This externalised debt becomes harder and harder to service, as the domestic currency falls. 

Thereby, causing a continuous pattern of debasement. 

South Africa’s present situation

South Africa has had a number of Finance ministers in the past few years, but only one Reserve Bank governor since 2015. There is still a sense of trust in the independent institution, but South Africa does have some similarities to Turkey.

South Africa’s externalised debt is also around $170Bn, but most of it is not Dollar denominated. However, South Africa received its first Dollar-denominated loan from the IMF last year – its first since Apartheid. This debt, along with its attached policies, will definitely be very difficult to service in the future. 

Then, let’s take a look at South Africa’s M2 supply over the past 10 years:

It’s certainly not as bad as Turkey, but notice the big jump in 2020… This seems to be where Ramaphosa’s R500Bn budget for COVID came from. That was quite an easy thing for the government to implement, without much opposition. 

Now that the precedent is set, when will the printer be in action again?

When will the manipulation begin?

RW Johnson, Rossouw and Padayachee also agree on one main thing: Governments can’t keep themselves away from the money printer. That is the inherent corruption that fiat money has brought to all central powers. 

You may have heard the constant and expanding narrative of the ‘nationalisation of the Central Bank’ by the EFF and ANC. 

As populism grows and the chance of this event happening – it means nothing but rate manipulation and a lot of ZAR liquidity in the market. 

Rossouw’s and Padayachee’s conclusion in their paper:

After 25 years, central bank independence might have come full circle, with the current ANC government’s stated objective as agreed at its National Conference in December 2017 to “nationalise” the SA Reserve Bank. It is not clear whether this is merely an amendment to an institutional structure to bring it into line with global trends, or indeed whether it is an insidious move to interfere with the operations of the Bank, possibly the first step in taking the South African Reserve Bank under executive control again, as was the case in the 1980s.

When looking at things in a rational manner; it’s not looking good for the Rand in the long term. 

It’s Bitcoin’s time

I’ve said it before and I’ll say it again – we can exit all of this madness. There is an incorruptible, uncontrollable, decentralized, scarce asset called Bitcoin, that is the complete antithesis to this all and the ultimate hedge against inflation.

Governments know that Bitcoin is becoming their adversary and people like Erdogan have stated:

‘We are in a war against cryptocurrencies.’ – 18 September 2021

In Turkey, people are trying to escape inflation and by April this year, more than 5 million users were active on Turkey’s 2 largest Bitcoin exchanges.

The ANC is not the only corrupt government on this planet. Unfortunately, the fiat system has led central powers down a dark road where greed is endless, money printing is easy, and thus the fiat roads are all leading to zero. 

So, in conclusion there’s nothing to say but buy Bitcoin, self-custody it, increase your privacy, increase your security and become self-sovereign. It is harder than it sounds, there’s a lot of education and patience required. But thankfully, it is very, very possible. 

Bitvice Podcasts and Media

This week, Ricki chatted with @1971Bubble about what’s happening in Turkey, the country where he was born and currently resides. He wrote a fantastic article in Bitcoin Magazine about the debasement of the Turkish Lira and the underlying causes. 

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By The Horns is a Bitcoin podcast in the South African context. You can follow our discussions via video on  YouTube or via the audio version on Spotify, Google Podcasts or Apple Podcasts. If you are listening on a different podcast app, here is our RSS feed.


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