• Turkey sold nearly all its US Treasury holdings in March, reducing them from $2.5 billion to just $200 million, according to Treasury Department data.
  • The move, part of a broader strategy to support the lira and stem dollar outflows, comes amid record-low foreign reserves and high inflation.
  • Analysts say the liquidation risks further straining US-Turkey relations and signals deepening financial vulnerability.

A Dramatic Divestment

Turkey liquidated nearly all of its US Treasury holdings in March, slashing its position to a mere $200 million from $2.5 billion the previous month, according to Treasury Department data reported by Bloomberg. The move represents one of the most abrupt selloffs by a major US ally in recent years.

This divestment, which caught many market participants off guard, coincides with a period of severe pressure on the Turkish lira. The currency has lost over 30% of its value against the dollar in the past year, and the central bank's foreign exchange reserves have been drained to critically low levels after repeated interventions.

According to people familiar with the matter, Turkish authorities have been seeking creative ways to obtain foreign currency. In March, the lira hit record lows, prompting the central bank to burn through an estimated $15 billion in reserves. “The sale of US Treasuries is a sign of desperation,” said a former central banker who asked not to be named. “They needed dollars fast, and this was one of the few liquid assets they had left.”

Broader Implications

Turkey's move mirrors similar actions by other emerging markets that have sold off dollar-denominated assets to prop up their currencies. However, the scale is stark: Turkey was once a top-20 holder of US debt, with holdings peaking at over $60 billion in 2010. The latest sale leaves it holding negligible amounts.

The Treasury data also showed that March holdings are the lowest since at least 2001. Attempts to reach the Turkish Treasury and central bank for comment were not immediately successful.

This development follows a period of strained economic ties between Washington and Ankara. The US has sanctioned Turkey over its purchase of Russian S-400 missile systems, and trade disputes have simmered. With Turkey now effectively out of US government debt, analysts warn that any future dollar-dependent interventions will be even harder.

“Without a significant stash of US Treasuries, Turkey’s ability to support the lira in a crisis is severely impaired,” said an economist at a New York-based think tank. “They’re now reliant on swap lines or direct loans from friendly nations.”

Context and Outlook

The liquidation also signals a shift in Turkey's reserve management strategy, prioritizing immediate liquidity over long-term yield. With inflation above 50% and President Erdogan’s unorthodox insistence on low interest rates, foreign investors have fled Turkish assets. The central bank has increasingly turned to gold and, according to reports, direct purchases of lira to stabilize the currency.

Looking ahead, Turkey faces a delicate balancing act. Without the cushion of US Treasuries, any renewed lira crisis could force the government to impose capital controls or seek a bailout from the IMF—a step Erdogan has strongly resisted. For now, market participants are watching whether Turkey will replenish its Treasury holdings in April or continue to pare them.

Editor's note: The exact figure of $200 million has been corrected from an earlier version that cited $150 million, based on revised Treasury data.