Turkey has dumped almost all of its holdings of US Treasuries, using the proceeds to defend the lira as the Iran war wrecks its economy. The move drained the country’s foreign reserves and laid bare how vulnerable emerging markets become when geopolitical crises hit. Now, with its cushion gone, Turkey faces a fresh wave of instability.
Why Turkey Turned to Its Treasuries
The lira came under heavy pressure as the conflict with Iran escalated, driving up import costs and spooking foreign investors. To stop a full-blown currency collapse, the Turkish central bank liquidated the bulk of its US government debt holdings. The cash was then used to buy lira on the open market, a classic intervention technique. But the scale was extreme: nearly the entire Treasury pile was sold off, leaving the country with minimal reserves to call on in a future crunch.
A Warning for Emerging Markets
Turkey’s fire sale is a stark example of how emerging economies can be forced to burn through their safest assets when a regional war turns financial. Other nations holding large amounts of dollar-denominated debt may now be reassessing their own exposure. The episode highlights a vulnerability that central banks have long worried about: in a crisis, reserves meant to provide stability can vanish in a matter of weeks.
Risks Ahead for Turkey’s Economy
Without those Treasury holdings, Turkey has lost its main tool for defending the lira. If pressure resumes — from inflation, capital outflows, or another geopolitical shock — the central bank will have far less ammunition. The depleted reserves also make it harder to service foreign debts or stabilize prices. Economists point out that the very act of selling Treasuries to save the currency may eventually make the currency harder to save.
Turkey’s government has not announced any new borrowing or currency swap lines to replace the lost reserves. That silence leaves the country exposed, and global investors are watching closely for the next move.
