What Should the Dollar/TL Parity Really Be?

It is always a classic discourse. They say that when it comes to the price of something, the balance of supply and demand comes into play.

The values of the currencies of countries are probably determined in the same way. 

But is this really true? 

For example, how do you think the Euro/Dollar parity is determined? Is it the balance of supply and demand? Or do central banks have an impact on this balance?

Or let me continue with a simpler question from a slightly different perspective. 

What are the sub-components in determining the value of something? 

For example, how much of it is cost? 

When we say cost, for example, we divide the work items in construction works into labor and material costs. We present our proposal to employers by detailing these costs. Because the breakdown of the work items to be done from the project can be extracted.

Or let's look at another component in the cost. For example, how much is the R&D cost in the price? To what extent does R&D affect the price, and to what extent should R&D cost be included in the price?

Huge costs are incurred in the world to develop a product. These costs are distributed according to the total amount of products that can be produced, based on research on how much demand the resulting product will be in demand. As you can appreciate, it is not possible to get it all back immediately.

What about the brand cost? How much of the price is the brand cost? 

It is not easy to create a certain brand. It requires many years of labor. Therefore, even if it is the same type of product, if it belongs to a famous brand, the price can be higher to a certain extent. People prefer branded products more.

Or how much of the price is profit, how much should be profit? This is another variable in product prices. The company will make a profit so that it can survive in its sales. It must have the financial power to supply other products.

All these and similar questions, on the one hand, and the answers to these questions, on the other hand, determine product prices.

I guess the last question is how much of the price is determined by the balance of supply and demand. If supply is high and demand is low, the price will be low. And vice versa, that is, if there is less supply and more demand, the price goes up. Where should the balance be?

If I am a producer, I am not going to sell what I produce below cost. Cost, as I said above, depends on many different variables.

I just remembered the soup shop on Tunus Street where the shuttles used to leave when I was at university. 

I don't know if there are still shuttles from Tunus Street to METU. If we couldn't catch the shuttle, if the class at that time was important, we would have to go to Güven Park and take the minibuses that left from the park. METU minibus drivers would address us as "teacher" like everyone else, unlike other minibus drivers. 

Or, if we had time until the next service, we would go to a soup shop and wait for the next service on Tunus Street. At the same time, we would fill our bellies.

I don't know if the soup shop is still there, I think the name of the place was Iscak. Iscak Çorba and Köfteci. There were dried beans, rice, meatballs and everything like that, I wasn't a fan, but as far as I remember there were all kinds of offal. The prices were also suitable for students, it was quite cheap. 

If there was a little time before the service left, we would at least go in and have a soup. We usually had dry rice and meatballs with it. Those were the days. 

The one sitting at the cash register would quickly make the bill in his mind and then make a little discount and always say "just give me this much, teacher". The address "hodja" was used there too.

In other words, sometimes you win on the side. You keep the profit share low, but your earnings are still good because you sell a lot.

It is all a balance.

Now, in today's Turkey, as a result of the government's economic policies and a bit too much state intervention in the market, we have an inflationary economy and foreign exchange prices are being kept at a certain level in violation of free market conditions. It is not possible to know the real cost and price of anything. 

No one has a real idea of what exactly it should be because the exchange rate is artificially kept at a certain level. 

The government has been at someone's door all the time lately asking for loans. I won't go into this now. My nerves are on fire when I think about how much the economy is hanging by a thread.

Anyway, let's say the government changed its economic policies and returned to free market conditions as it should. 

Still, with various interventions by the central bank, foreign exchange prices and market conditions will probably come into balance in a different way. In other words, in any case, exchange rates stabilize under the control of the state. There is no state that does not intervene in the exchange rate balance. There are only some methods that are considered correct. Methods that are not correct are quite risky.

At this stage, a question comes to my mind as to how to determine the real value of our currency.

Where should the level of exchange rates be? 

Or should we somehow determine the value of our money? 

Or should our currency find its own equilibrium in the market balances with other conditions that we determine?

The answers to all these questions are hidden in the subtleties of economic management. There are many orthodox and heterodox methods in economic management.

Competition in the international arena is the most important issue that all countries of the world focus on today. Sometimes even hot wars break out for this cause. But mostly the wars are commercial in nature.

As you know, we have been talking about trade wars between the US and China for a long time. 

In order for a good you produce to be in demand in the international arena, I think it needs to have a number of features. 

One of these characteristics is definitely quality.

Another one is brand value. 

The brand issue is a bit related to trust. People are not going to check the quality of your product every time. 

The brand is also an indicator and assurance of quality. 

That's why I always talk about the need for us to have brands in my articles. Brand is important!

Another one is the price, naturally. 

In order for a product of the same quality and features to be preferred, it is important that the price is more affordable than others. Naturally, the transportation cost within the price is also a very important factor.

Our country has a very favorable geopolitical position, especially for Europe. The transportation of the products we produce is quite convenient for Europe. 

But there are such products that people have no other choice. They are forced to buy that product. This is also true for specialty products. 

Even though there are other similar competitive products, some products are preferred much more. Here, quality, brand and the uniqueness of the product have a huge impact. 

The phone and computer brand famous for its bitten apple symbol is an example of this. 

Since they developed many of the products in use in the world today for the first time, people are in a sense compelled to buy these products. Even though their competitors have recently developed similar products, their products are still in high demand. In this case, other options can be ignored. Let me call this kind of products the fashion of the day. But I would like to remind once again the importance of developing new products.

However, of course, it does not mean that products in this situation will be bought regardless of the price. There is definitely an upper limit to the price you set. At the very least, you need to take into account people's income levels.

In fact, there is an upper limit to the price of everything. We can also call it a psychological limit.

When we go to the market with my wife, for example, when we are going to buy fruit, she looks at the prices and says no, it's too expensive. I say, "If you want it so much, buy some. It's fruit, so what if it's expensive. If you want it, just buy it, but she still says no. If we buy it at this price, I won't feel comfortable eating it. It bothers me how expensive it is.

Of course, this is a simple example, maybe I wouldn't feel the same discomfort, if I felt like it, I would buy some. But naturally I have some limits in my mind about how much something costs. We all have them.

This is where we come to the limit of the cost price. 

Are we going to produce that product no matter how much it costs? 

We cannot sell it if it is above a certain price.

Let's talk about a current issue. For example, will we extract natural gas from the Black Sea, regardless of the cost?

I think the answer is of course we will. 

Energy is our most pressing concern. Even if the cost of extracting natural gas and the effort we spend is too much for today, it is very important for our future. I can understand this. 

Of course, we support the work done to the end. At least I do, that's how I think about it. 

But those who follow my articles know that I have written a lot about different options in terms of energy. I think the investments made should not be only for natural gas. I think there are many energy investments that need to be made together. I have them all in my articles, I will not go into the details here. 

Well, let's talk about another current issue. 

What should our national livestock policy be? Or agriculture? 

Isn't it undermining our domestic animal husbandry to import carcass meat or live animals and bring meat from abroad at more affordable prices because the cost is high in our country? 

Or how logical is it to import various products in agriculture? 

In this regard, I think it would be beneficial to remain national no matter what the answer is. Or do you say it doesn't matter? 

What do you think about the need for state support for agriculture and animal husbandry? 

Do you also think that support should be given? 

Or do you think, like me, that if support is to be given on these issues, support should be given to the transition to modern methods and that only by reducing the cost can we remain national? 

For example, I think so. I even think that even state support is unnecessary after a certain level. I think it is the best method that the price balance within the country should be formed wherever it is formed.

But this time, the cost items in our country are not the same as in some countries in the world. At least our energy resources are not sufficient for now. The energy supplied from abroad is very expensive. If some countries can produce agricultural products at lower costs than us, why should we limit ourselves to being national? If we can import them at lower prices, let us import them and let the people eat at affordable prices. If we can import at affordable prices, why are we forcing ourselves to remain national?

I guess this is another point of view.

Which one is right? Where should the balance be?

If we are completely dependent on imports, won't there be a problem if prices in the world increase unexpectedly? For example, there is a war abroad and grain prices suddenly skyrocket. What will we do then? For example, the price of bread will skyrocket in the country. 

Isn't that what is happening today? How much impact do you think the Ukraine war had on grain prices? I think a lot.

Didn't the war have an impact on energy prices? Of course it had an impact on that too.

So all these different variables need to be put on the table and a policy needs to be determined according to the best possible scenario without putting all the eggs in one basket. 

In other words, it is not only possible with free market conditions. In a sense, it is obligatory for the state to intervene in the market as necessary by making risk analyzes in every subject.

Here we come to the principle of statism. 

There is someone who thought of this almost a century ago. Atatürk! In the conditions of that day, the principle of statism may not have been determined with this awareness. After all, the motivation for the implementation of this principle was the lack of power of the private sector. But at the point we have reached, I think we can all perceive that statism must be applied to a certain extent. At least in critical issues, the state should have this option to be used when necessary. 

Of course, in the context of these examples, we have also realized that the state should also have a monetary policy. 

Unfortunately, determining the value of our currency only by free market conditions is not the right solution. 

However, when we say that we will compete in the world with high exchange rates, therefore cheap labor, and even cheap national materials in some products, there has to be a balance. 

The state has to calculate this balance by putting all kinds of conditions on the table. 

This brings us to the importance of planning. There was once a state planning organization. They used to make long term plans. 

Although I don't know if such analyses were being made at the time. After all, a lot of water has flowed under the bridge. The world conjuncture has changed a lot. 

But I think if you are planning for the future of the state, it is very important to make these analyzes as a priority.

And shouldn't those who govern us have this detailed knowledge? How else can they make the right decisions if they are not informed?

In this case, we come to politics again.

Which of the politicians do you think would know these details?

They have advisors, don't they?  You are right, politicians who run countries always have hundreds of advisors around them. 

But advisors don't run the country. Politicians run the country.

Shouldn't at least the chief executive have enough knowledge, or at least a certain capacity, to understand what the advisors are saying? 

If the politician makes the decision, I think he should!

But a politician also has to have the favor of the people. In this case, his primary characteristic is either to be a good orator, charismatic, or a man of the people, able to speak the language of the people. With populist policies, he will also gain a place in the eyes of the public. People don't vote for him because he is very knowledgeable. The components of voting are very different, but unfortunately being knowledgeable has a very low rate among these components.

Each of our parties represents the views of a part of the public. Some have political Islam views, some have leftist views. Some are nationalist, some define themselves as conservative. Some call themselves peoples, they have an ethnic discourse. Some say we are a center party, but I don't think it is clear what exactly they are saying. Let's not count the ones with marginal views.

None of them say that they represent knowledge, for example, because knowledge is not something that is valued very much in the eyes of the public. People make their choices based on very different things. In recent times, they don't even make a choice. They just support a party like a fan. They don't care what the party says, what it does and how it does it. Fener is the biggest, there is no other big! Or Beşiktaş or Galatasaray. It doesn't matter, it's like a team, not a party. By the way, Kocaelispor is the biggest! Even though it is crawling, I think my favorite team is the biggest!

Joking aside, I hope you have understood from what I have written that the country's administration really wants information. 

Then what are we going to do? How are we going to do it?

The main topic of our article should have been about the real value of our currency against the dollar. Therefore, I had originally planned an article on the economy. 

In fact, it is not possible to know the level of the Turkish lira without doing the analysis I mentioned. 

There have been complaints from exporters these days that even though the dollar exchange rate has been raised so much with the current economic model, the fact that the government is keeping the dollar exchange rate at a certain level today in order to compete as expected is preventing some from making enough profit. Some exporters argue that the exchange rate should be raised a little higher. This would allow them to lower their product prices to much more competitive levels. 

Let's do it like this. Let's start a slavery system in the country and reduce the cost of labor to the level of fullness, or even starvation. Then we can probably give really competitive prices to the world.

I am of the opinion that the economic model, if it is indeed a model, will put this country in a much more difficult situation. I am of the opinion that the government adopted this model because it was forced to do so. What were the dreams, what was the result, those who are more knowledgeable about these issues are already explaining them clearly enough. 

It is very difficult for some people to understand, but at least inflation and the cost of living have proved to everyone that this is not the right way to go. 

And the money that was handed out before the elections, like the dates you eat today, let's see where it will scratch us tomorrow.

Yes, where should the dollar exchange rate really be? If I don't answer this question, it will be as if all these lines were written in vain.

Let's try to answer this question with plain logic.

Where is the euro/dollar parity? The euro is slightly more valuable than the dollar, isn't it? 

Is America more prosperous or Europe? I think the answer is Europe. There are a lot of poor people in America. The streets are full of homeless people and so on.

So if you are asking me, the straightforward answer is this:

If we want to live more prosperous than Europe, our currency should be worth a little more than the Euro. 

1 TL = 1.10 Euro is fine for me. In other words, the TL/Euro parity should be 10% more than the Euro. I can actually settle for less. After all, the goal is as long as our people live in prosperity. 

But I think we need to eat a lot more bread to do that. I'm sorry, it doesn't work by eating bread, does it? 

Did we need to shave our hair like the barber's child or eat more meat like the butcher's child? No, not that either, I mixed up the stories again, that was another story.

Anyway, you already understood what I meant. I think you do. I'm sorry if I didn't make it clearer, there's nothing to do. I can't do much more unfortunately.

Love and respect to everyone from Moscow