Bezen & Partners | News

A Look Back at Foreign Currency Restrictions

06 November 2018

It has been exactly a month since the Ministry of Treasury and Finance issued its list of exceptions to the highly controversial foreign currency and currency indexing limitations introduced in early September.

This legal briefing will attempt to revisit the restrictions with the benefit of further Treasury guidance and market observations across a number of different sectors during this time.


Decree No. 32 on the Protection of the Value of the Turkish Currency (“Decree No. 32”) which governs Turkey’s general currency and capital flows regime, amongst other things, was amended by Presidential Decision No. 85 on 13 September 2018.

The amendments had brought sweeping restrictions on the use of foreign currency and currency-indexing in certain contract categories entered into between Turkish residents and required existing contracts to be converted into Turkish Lira within 30 days, all subject to the exceptions determined by the Ministry of Treasury and Finance, which were published later, on 06 October 2018.

Readers may refer to our 14 September and 9 October Legal Briefings for more detailed discussions of the original restrictions and the Treasury’s exceptions.

Treasury guidance

While commercial parties were struggling to gauge their place in the new regulatory landscape, a rumour was being echoed across industry groups that the Treasury was taking steps to establish a Q&A platform to communicate the current regulatory interpretation of the new regulations in response to market queries.  

The rumour had ignited hopes that much-needed clarity was going to be dispensed through this platform soon. While this did not materialise, the Treasury did issue further guidance under a frequently asked questions (FAQ) sheet available on its official website[1].

The FAQs are non-binding, but they are nonetheless important in showing how the Treasury, tasked with the administration of the new regulations, is going to be approaching matters in the first instance.

The Treasury FAQs and reading between the lines

In their current form, the FAQs do not address some of the complex questions the market is struggling with. However, it is noteworthy that the FAQs have been revised and re-issued 3 times in their first week, with their first iteration advising a simple (non-compounding) calculation for CPI adjustments, later replaced with a compounding calculation and in the third and current iteration, avoiding express mention of the matter but using a formula that employs a non-compounding calculation.

An optimistic takeaway could be to look at this as an indication that the FAQs will be an “evolving instrument” that will supplemented from time to time to offer more wholesome and robust guidance in later iterations.

However, if the Treasury is, in fact, intentionally avoiding complex questions for the time being and leaving them to be resolved through courts, this could make any attempt at reading between the lines of the FAQs an unreliable exercise.

For example, the response to Question 9 of the FAQs suggest that if an “ancillary payment obligation” in a non-exempt contract includes an insurance obligation, this insurance would also need to be in Turkish Lira. Looking past the apparent confusion that an obligation to provide insurance in a commercial contract would always have to be a “procurement obligation” (because insurance, in its technical meaning, can only be provided by regulated providers), never a “payment obligation”, one could reasonably infer that the Treasury favours an interpretation that groups contracts by reference to their prominent elements rather than an individual, itemised assessment. However, as noted above, given the lack of visibility at this stage, this reading does not travel too far beyond speculation.

Reversal of exceptions?

Perhaps the most eye-catching response from the Treasury FAQs is to Question 15, which relates to Article 8(25) of the Treasury’s list of exceptions under Communiqué No. 2018-32/51.

Article 8(25) of Communiqué No. 2018-32/51 provides, somewhat confusingly, that parties who benefit from the exceptions can “mutually agree” to demand the execution of future contracts in Turkish Lira or convert existing contracts to Turkish Lira.

According to the Treasury’s reading, as set out in the FAQs, “unilateral exceptions” which are for the benefit of a single party can be disapplied if that party chooses not to benefit from the exception. This approach confirms a concern that many people in the market had voiced, in particular in relation to the first iteration of the list of exceptions, that certain parties may have the benefit of a unilateral conversion right.

For new contracts, this does not appear capable of making a meaningful difference. If a party was intending to contract in Turkish Lira, it is and always was free to do so with any willing counterparty.

However, the situation is entirely different for existing contracts. According to the FAQs, a party that benefits from a “unilateral exception” in relation to a contract will have the ability to unilaterally alter its economics in a material and substantial manner. This approach gives cause for worry not only from a commercial perspective but also from a technical legal perspective as it relates to Constitutional protection of contracts and principles of legal certainty.

The FAQs do not address what would happen where multiple exceptions (some being “unilateral” and others being general) apply or where both parties qualify for a “unilateral” exception. They also do not specifically set out whether the purported unilateral option would expire after a certain time.

What we still don’t know

While the commercial and residential real estate markets, where the regulatory position is less ambiguous, seem to have adjusted to the new requirements, this is far from being a general representation of all sectors.

Currently, there still does not seem to be a satisfactory responses to the terminology, interpretation and administration issues around the new regulations. This is making it difficult and in some cases, almost impossible, to generate a market consensus on these matters.

So far, the regulations have required a case-by-case approach, sometimes leading to a selective application and interesting shifts in the competitive landscape. More worrying is that some parties are finding themselves, for lack of a better word, paralysed, caught between the commercial consequences of converting to Turkish Lira where they could otherwise benefit from an exception and the regulatory risk of subscribing to a liberal interpretation of the regulations.

It is likely that these questions will continue to haunt parties for the foreseeable future, pending more robust guidance being made available by the Treasury.


A month into its full implementation, the currency regulations continue to remain a challenge to reliably and consistently apply in practice with a spectrum of interpretations, ranging from heavily conservative to dangerously liberal, being called upon to support various commercial positions.

These difficulties notwithstanding, commercial parties should be mindful of the regulatory, and potentially, substantive, risks of non-compliance and continue to endeavour for compliance, as much as possible.

Commercial parties should also be mindful that a contractual allocation of administrative penalties for breaches of Decree No. 32 in this context may not always be enforceable, for example if they are found to be incentivising an “unlawful” or “immoral” purpose.

Finally, commercial parties should take note of the Treasury’s approach to unilateral conversion rights as stated in the FAQs and should consider whether there would be commercial benefit in seeking express waivers from their counterparties to exclude any future exercise.


Key contacts

For more information, please contact us:

Yeşim Bezen, Senior Partner | [email protected] | +90 (212) 366 6804

Aykut Bakırcı, Senior Partner | [email protected] | +90 (212) 366 6805

Murat Soylu, Partner | [email protected] | +90 (212) 366 6802

Can Özilhan, Senior Associate | [email protected] | +90 (212) 366 6811

Uğur Sebzeci, Senior Associate | [email protected] | +90 (212) 366 6815

Zekican Samlı, Senior Associate | [email protected] | +90 (212) 366 6817



This material is for general information purposes only. It does not constitute legal advice and should not be relied upon as such. You should always seek specific legal advice about your specific legal circumstances before taking any action based on the contents of this material. While we make all reasonable efforts to ensure that all factual information set out in this material is obtained from external sources which we reasonably believe are reliable, we do not guarantee their accuracy or completeness.

© Bezen & Partners 2018

[1] The Treasury’s FAQs sheet is currently accessible at: