WarSclerotic

President Tayyip Erdogan told Turks on Friday to exchange gold and dollars into lira, with the country’s currency in free fall after President Donald Trump turned the screws on Ankara by doubling tariffs on metals imports.

The lira has been falling on worries about Erdogan’s influence over monetary policy and worsening relations with the United States. That turned into a rout on Friday, with the lira diving more than 18 percent on the day and more than 40 percent this year to a new record low after Trump took steps to punish Turkey in a wide-ranging dispute.Trump said he had authorised higher tariffs on imports from Turkey, imposing a 20 percent duty on aluminium and 50 percent one on steel. The lira, he noted on Twitter, “slides rapidly downward against our very strong Dollar!”

“Our relations with Turkey are not good at this time!” he said in an early morning post.

While Turkey and the United States are at odds over a host of issues, the most pressing disagreement has been over the detention of US citizens in Turkey, notably Christian pastor Andrew Brunson who is on trial on terrorism charges. A delegation of Turkish officials held talks with their counterparts in Washington this week but there was no sign of a breakthrough.Waves from the crisis spread abroad, with investors selling off shares in European banks with large exposure to the Turkish economy.The lira sell-off has deepened concern particularly about whether over-indebted companies will be able to pay back loans taken out in euros and dollars after years of overseas borrowing to fund a construction boom under Erdogan.Erdogan’s characteristic defiance in the face of the crisis has further unnerved investors. The president, who says a shadowy “interest rate lobby” and Western credit ratings agencies are attempting to bring down Turkey’s economy, appealed to Turks’ patriotism.

“If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. This is a national, domestic battle,” he told a crowd in the northeastern city of Bayburt. “This will be my people’s response to those who have waged an economic war against us.”

“The dollar cannot block our path. Don’t worry,” Erdogan assured the crowd.

That is unlikely to mollify investors who are also worried by the growing dispute with the United States.

The tensions with Washington have, for investors, underscored Turkey’s authoritarian trajectory under Erdogan.

“The basic reason the exchange rate has gone off the rails is that confidence in the management of the economy has disappeared both domestically and abroad,” said Seyfettin Gursel, a prominent economist and a professor at Turkey’s Bahcesehir University.

“First of all, confidence needs to be regained. It is obvious how it will be done: since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders.”

Turkey’s sovereign dollar-denominated bonds tumbled with many issues trading at record lows. Hard currency debt issued by Turkish banks suffered similar falls.

Meanwhile the cost of insuring exposure to Turkey’s sovereign debt through five year credit defaults swaps has spiralled to the highest level since March 2009, topping levels seen for serial defaulter Greece , which has three bailouts in the last decade.

The lira’s relentless depreciation drives up the cost of imported goods from fuel to food for ordinary Turks.

New Finance Minister Berat Albayrak—Erdogan’s son-in-law—acknowledged that the central bank’s independence was critical for the economy, promising stronger budget discipline and a priority on structural reforms.

Presenting the government’s new economic model, he said the next steps of rebalancing would entail lowering the current account deficit and improving trust. There would be a transformation in the finance ministry with regards to taxation, he said.

This did nothing to revive the currency. “The tweet is mightier than the Turkish sword,” Cristian Maggio, head of emerging markets strategy at TD Securities, said in a note to clients. “Albayrak’s plan was uninspiring at best.”

Erdogan, a self-described “enemy of interest rates”, wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing. His comments on interest rates—and his recent appointment of his son-in-law as finance minister—have heightened perceptions that the central bank is not independent.

The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting.