President Erdogan made a presidential decree that mandatorily requires use of Turkish lira for transactions concluded between parties resident in Turkey. The Decree amending the Decree on Protecting the value of Turkish Lira, (The Decree) is published in the Official Gazette and came into force on 13th September 2018.
The Decree orders use of Turkish Lira for purchase and sale of all kinds of goods, commodities, services and real estate. All kinds of lease and rental of vehicles and all kinds of goods and real estate must also be made by using Turkish Liras. The decree also stipulates that no reference to currency exchange tying a contract payment or value to foreign currency can be made and the all contracts between Turkish residents even if foreign owned must be based on Turkish Liras.
Let’s see the changes introduced by the regulation point by point.
No Use of Foreign Currency in domestic Contracts
New currency policy states that all payments related to contracts between local parties i.e. Turkish Residents whether legal persons or real persons must be made in Turkish liras.
Accordingly all real estate transactions must be made in Turkish liras and no reference can be made to foreign currencies.
All Contracts Must be Amended within 30 days
The Decree establishes also that all contracts between Turkish residents made before 13th September 2018 must be amended and the payments must be converted into Turkish liras from any foreign currency within 30 days from the publish date of The Decree (13th September 2018): this shall mean that all contracts based on foreign currencies must be amended within 14th October 2018.
There is no reference to a currency exchange rate when amending contracts into Turkish Liras. The parties are free to agree on any currency rate when amending however this cannot be stipulated in the contract but only for negotiation purposed when drafting the amendment.
The governmental projects which have been signed earlier should be coordinated with the related authority and adaption should be made in line with the new currency regime.
Import and Export of Goods and Services
The new decree does not impact an export or import relation, as long as one of the parties is not Turkish resident. However one must note that The Decree may have an impact on Turkish based subsidiaries of multinational companies trading with foreign currency.
There is no limitation in bringing foreign currency into country.
Sanctions
New foreign currency policy does not address any criminal or administrative sanctions. New regulations should be expected to implement the practice of The Decree. Needless to say, if one of the parties of an existing contract based on foreign currency will be eager to take the matter to the civil courts if no amendment is made within 30 days and easily obtain a court decision for amendment.
Conclusion
This move is considered as one of the steps of measure step to support the ailing local currency.
Slipping Turkish Liras has been an on-going concern for Turkey in last 6 months. The sudden drop of Turkish Liras exchange rate urged the government to find a quick cure to increase the value of Turkish liras or at least to maintain the status.
Those days, some rough policies have been adopted by governments to safeguard the fragile Turkish Lira. The measures taken indeed prevented Turkish economy to accelerate and take off. With the new liberal look after 1983 elections many of these hard measures were lifted and the law on Protection of Turkish Liras was eased. The era before 1980s when there were hard policies applied to protect Turkish Lira was in a different world than today.
The latest measure may or may not address an improvement but it is a fact that many foreign investors or local investors funded by foreign institutions will have to struggle due to the new regulations pushing them to amend their contracts into Turkish Liras from foreign currencies.