An Analysis of the Structure, Mechanism, Cost, and Components of the FX-Protected Deposit System

Abstract

In September 2021, as part of the unconventional monetary policy initiated in Türkiye, the policy interest rate began to be lowered. This situation increased demand for foreign currency, resulting in sharp rises in the exchange rate and subsequently in inflation. To maintain low nominal and high negative real interest rates, the Currency Protected Deposit (KKM) system and macroprudential measures were employed. In this study, the developments in key financial indicators such as interest rates, deposits, inflation, and reserves during the KKM (Currency Protected Deposit) process, which was closed to new accounts within 2025 and whose balance declined toward zero by the mid-2026, are analyzed. Additionally, the 58.7 billion USD loss caused by the KKM due to difference payments is demonstrated and evaluated alongside interest expenses within the budget. Arguments made in favor of the KKM, which essentially claim that this system did not cause harm, are addressed under a separate heading from a technical and financial perspective. The study explains that KKM and different macroprudential measures used in the relevant period are not instruments suitable for the free market system, and that they do not possess an identity capable of replacing the interest rate that was intended to be rendered ineffective in monetary policy.