Turkey’s economic problems are well-known. President Erdoğan has appointed relatives and cronies to key economic policy positions. This has caused a loss of independence of the central bank and a loss of confidence in the stability of the currency, the Turkish lira.

The lira collapse has triggered hyperinflation and a stock market crash. Bond yields are soaring. This domestic crisis has the potential for global contagion because Turkey has almost $500 billion in dollar-denominated external debt, which it cannot pay if exports and tourism dry up. In addition, the U.S. and Turkey are in a trade war, partly due to Turkey’s detention of a U.S. minister who was traveling in Turkey.

Other clashes are emerging with NATO while Turkey is warming up to Russia and Iran with regard to its interests in Syria. In short, the Turkish economy is a mess and relations with the U.S. are near an all-time low. Still Turkey has one more rabbit to pull out of its hat.

As this article shows, President Erdoğan has now declared his goal of abandoning the U.S. dollar in Turkey’s commerce with its trading partners. Erdoğan sees a way to buy and sell with Russia and China in rubles or yuan.

Turkey has also been stockpiling gold, which it can use to settle balance of payments deficits and to back up a new currency, if needed. Pursuit of these non-dollar alternatives suggests it’s just a matter of time before Turkey closes its capital account and reneges on its dollar-denominated debt.

Standing alone, Turkey is not a huge part of the global trading and payments system. But, it could start a trend toward non-dollar transactions that other countries can follow.

Just as debt default is contagious, rejection of dollars can be contagious. Turkey is reeling now but may have the last laugh if its non-dollar plans catch on.

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