The Turkish Lira and Gold: A Strategic Perspective on CBRT's Swap Auctions

The Central Bank of the Republic of Türkiye (CBRT) has emerged as a pivotal actor in managing the Turkish Lira's (TRY) volatility in 2025, deploying a mix of liquidity control tools, foreign exchange interventions, and gold-backed strategies. As global markets grapple with inflationary pressures and geopolitical uncertainties, the CBRT's approach offers a case study in balancing monetary tightening with strategic hedging. This analysis explores how the CBRT's swap auctions, repo rate adjustments, and gold accumulation are reshaping the lira's trajectory-and what this means for investors seeking to navigate emerging market risks.

CBRT's Liquidity Management: A Dual-Pronged Approach

The CBRT's 2025 strategy hinges on two pillars: sterilizing excess liquidity and stabilizing the lira's exchange rate. By September 2024, the banking system faced a liquidity surplus of ₺139.6 billion, prompting the CBRT to resume one-week repo auctions and introduce gold and foreign currency swap auctions to absorb excess funds, according to a Bazaartimes report. These measures align with a broader tight monetary policy, including raising the overnight lending rate to 46% in Q3 2025 while maintaining the one-week repo rate at 42.5% as a benchmark, per a Türkiye Today article.

However, the CBRT's interventions extend beyond interest rates. In response to a 12% lira depreciation against the U.S. dollar in early March 2025, the bank introduced Turkish lira‑settled foreign exchange forward‑selling transactions to curb abrupt swings and enhance market predictability (reported by Türkiye Today). These tools aim to reduce the lira's exposure to speculative flows, a critical step in restoring investor confidence.

Gold as a Hedge: Strategic Reserves and Bilateral Swaps

Gold has become a cornerstone of the CBRT's strategy to insulate the lira from external shocks. Central bank reserves surged to $84.02 billion in May 2025, driven by gold accumulation, according to a Türkiye Today report. This aligns with a global trend of emerging market central banks diversifying reserves into non-dollar assets.

A notable development was the CBRT's $4.9 billion bilateral currency swap agreement with the Central Bank of the United Arab Emirates (CBUAE) in October 2025, according to a Reuters report. This deal, worth 18 billion UAE dirham and 198 billion Turkish lira, aims to provide local currency liquidity and stabilize cross-border transactions. Such agreements reduce reliance on the U.S. dollar, mitigating risks from global liquidity tightening and geopolitical tensions.

Yet, the CBRT's approach is not without challenges. Analysts at Goldman Sachs warn that allowing the lira to depreciate rapidly could deter foreign capital inflows, particularly from carry trade strategies that rely on stable exchange rates (as noted in Türkiye Today). This highlights a delicate balancing act: while depreciation supports export competitiveness, it risks amplifying volatility and eroding confidence.

Implications for Investors: Diversification and Risk Mitigation

For investors, the CBRT's actions underscore the importance of hedging against currency volatility in emerging markets. Gold, in particular, has emerged as a strategic asset. As the CBRT builds gold reserves, the lira's correlation with gold prices has strengthened, offering a potential hedge for investors exposed to Turkish assets.

However, the effectiveness of gold as a hedge depends on global macroeconomic conditions. For instance, rising U.S. interest rates could drive capital away from gold, reducing its appeal as a safe haven. Investors must also consider the CBRT's sterilization measures, which could influence domestic liquidity and, by extension, gold demand.

Conclusion: A Path Forward

The CBRT's 2025 interventions reflect a proactive stance in managing the lira's volatility, combining traditional monetary tools with innovative strategies like gold-backed swaps. While these measures have curtailed liquidity surpluses and stabilized exchange rates, the lira's long-term trajectory will depend on global inflation trends and the CBRT's ability to maintain policy credibility.

For investors, the key takeaway is clear: diversification across currencies and assets-particularly gold-is essential in navigating emerging market risks. The CBRT's playbook offers valuable insights into how central banks can leverage gold and swap mechanisms to stabilize volatile economies, but it also serves as a reminder of the complexities inherent in managing currency risk in a fragmented global financial landscape.