The underlying economic, political and social wellbeing of a country are only some of the factors involved shaping a currency's exchange rate. Another is inflation rate. Although Turkish inflation is far, far lower that anyone who visited in 1990s will remember, it is still much higher than in the big economies of Europe. People with money in TL will be dissuaded from leaving it there if it will be worth 6.25% less in twelve months (the June rate of inflation for Turkey, this is still a lot worse than the Eurozone). Dissuaded unless, that is, the annual risk-free interest rate is a good margin more that this (Central Bank rate currently 6.25%, but ordinary punters can get 9-10% for 30 day accounts in their local bank). Even so I have found it so surprising of several years that the Turkish exchage rate has stayed as high as it has. Surely it is ludicrously overvalues? The key is, as OPO has identified, the large quantity of international "hot money" that remains (and continues to come) to the Istanbul financial markets. I guess this will continue to bolster up the TL providing the economic, political and social stay stable and benign to the operation of financial capital.
[Careful readers will have noticed that the analysis I offer here doesn't work too well for the UK - low/zero growth, high inflation, low interest rates. What the hell is happening here? And does anybody think they can translate it into simple terms intelligible to that economic ignoramous George Osbourne? I won't enter that territory in this post].
