The Devious Dervishes of Turkish Banking

part two: A BYZANTINE MAZE!

After taking a look at the way the new, internet-based media differs in form and function from
how print journalists traditionally pursued their craft, Part One reviewed plans, hatched in 2012,
to draw Turkeys’ private gold savings into the banking sector - and ultimately into the reserves
of its’ Central Bank.. Success in this enterprise required novel ways to pitch the idea… of
converting one’s tangible wealth into a fiduciary asset held in the custody of others. As it turned
out, it also required a stretching of the truth past what would ordinarily be considered the
breaking point!

It also turned out that, as I went back into the recent past in recreating the story, its’ many related
aspects formed a multi-stranded yarn - and a tale worth telling! So, I would ask the reader
indulgence for deviating from what was going to be the follow up to Part one: here we will
follow the story of the how the gold savings of Turkeys’ citizens became the target of its; neo-
liberal, pseudo-Islamist elites. That will take up almost all of this part two. While SOME of the
serial inaccuracies, over-simplifications, and/or misunderstandings that result from the modern
form of internet journalism which is overly-reliant upon a telephone and internet connection,
rather than the traditional form of beat reporting will be touched upon in this segment ...

it would be impossible to mine all of that rich vein of material in one go! The sequestration of
Turkish citizenries’ traditional store of wealth by forces of finance and state, is a story unto itself
…and therefore a Part Three is necessitated – there, the promised follow up will be featured!

The first time I opened a gold account was at a ‘participation bank’ – the term refers to the banks
charter as being in conformance with Islamic practice whereby profits must accrue from other
than taking direct interest. In the long history of Islam, the injunction against usury and interest
taking formed a core part of its theology – a theology that only recently has begun to make
accommodations to the outside world, as western technologic and financial hegemonies have
made themselves felt throughout Asia and the Middle East. In the area of the former Ottoman
Empire, including Turkey itself, where ayn currency –gold dinar and silver dirham – have been
replaced by dayn –paper currencies - one facet of this accommodation has been the arrival of
western-style fiat banking and its’ associated principles of measuring the cost of capital in
increments of time to which the charges of compounding interest are applied as a measure of the
‘opportunity cost’ therein.

In traditional Muslim culture, this measurement of money by time is ‘haram’ – outside of the
law! The practice of lending money at interest is “:Riba” – literally, “excess” in Arabic… a
proscribed practice that is as sinful as incest in the eyes of the Islamic law makers. As modern
western capitalism has penetrated into the economies of all these countries, the need for
workarounds to this problem has become evident. One such remedy is application of the term
darurah,(meaning "extreme necessity") to the conflict a believer has in holding an interest-
bearing account. Because of practical necessity of living in this modern world in other words, a
Muslim may be excused from sin in holding an interest bearing account, it is claimed, by this
remedy. Likewise, the banks themselves may absolve themselves in this manner for deviating
from the principles of Islam.

More recently, the creation of so-called participation banks has created a perception of Islamic
Banking as another – interest free – form of finance. By operating in the manner of an
‘investment bank’ – that is, investing in businesses rather than loaning money at interest, these
banks market themselves as giving relief from haram. The customers do not receive ‘interest’ on
their deposits, rather, they are able to receive ‘dividends’ on their capital in the form of a share of
the banks; profits from the businesses it lent that capital. This workaround is effectively a way to
avoid the problem of interest but it does not in any way give relief to the problems of fractional
reserve banking – problems that are so evident of the moment in all of the worlds’ economies.
But I leave discussion of this tension between modern attempts to accommodate Islamic gold and
silver based finance to the fiat systems of the West till another time. What matters for this story
is that the “Islamic” or “participation banks” were the first to offer ‘gold accounts’ to their
Turkish customers – tapping into the savings of their customers with a success that their more
western-modeled competitors soon came to envy!

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It was by opening a gold and a silver account at Kuveyt Turk Participation Bank that I first
learned the mechanics of how gold was to be monetized by the banks.

Through articles I had read, like this one –

“Deniz Kalkan, a 32-year-old housewife in Istanbul, is ready to move her gold. “I’ll put these in
a deposit account as soon as I get the time,” Kalkan said of the half-dozen gold coins she has
collected and stashed in her apartment. “It’s much safer to keep them in the bank than at home.”

When Kalkan brings in her coins, she’ll be joining a wave of Turks responding to a drive to lure
an estimated $302 billion of hidden gold into the economy to help ease the nation’s current-
account deficit, the world’s biggest after the U.S. Gold-based deposit accounts surged 15 percent
this year through the end of July, three times the increase in standard savings accounts,
according to the central bank.

The gold accounts give customers an amount in Turkish lira equivalent to the weight of the
precious metal they turn over to the bank. They can then withdraw cash or take out loans, while
the lender is able to sell or hold onto the gold. http://www.bloomberg.com/news/2012-10-
29/turkish-banks-go-for-gold-to-lure-302-billion-hoard.html
...my understanding was that gold could be bought and sold through the banks. Through putting
some of my lira savings into the so-called gold account I learned that the XAU element of the
game referred to the virtual ‘grams’ which were reflected in my balance. These were no more
‘gold’ than a piece of flint can be called a diamond, but they tracked the performance of gold in
the market. And while I could put my real gold into the bank, I would not be able to receive the
same tangible form of it back again – unless I was dealing in kilo quantities! What I learned was
not what I had expected or hoped for. Puzzled, I felt I had to do some more research.

As someone who held a good part of their assets in physical precious metals at the time, I was
directly interested in how this new plan might work for me. I was not happy, for instance about
having to pay 500 liras yearly for deposit boxes, and the insecurity of holding my stash around
home was a constant stress. The idea of being able to keep a portion of my stack in the bank –
and either earn interest on it, or use it as a security to borrow against seemed one that killed
several birds with one stone.

While I could earn around 10% with my paper savings in a lira time deposit, to me it was
important to be gradually switching all my fiat assets into some form of hard asset. By buying
the Meskuk and Ziynet coins produced by the State Mint I had a widely recognizable and easily
convertible store of asset, with little premium over the cost of minting since the Turkish mint
produces the largest number of gold coins in the world. The Ziynet has a more decorative
function, often sold with an brass hook soldered on for threading onto a chain to make a bracelet.
The ¼ Ziynet is a common gift for weddings and other occasions. The Meskuk, derived from an
Arabic word for coin, comes in four different sizes, from 1.8 to 36 grams, is issued with a year
date that is based upon the year of the Republics’ founding, 1923. Both Meskuk and Ziynet are
legal tender, though the face value is not recorded on the coin, and both have a purity of 91.66 or
22 karat.

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The State Mint has produced gold coins since 1452, and is unique in the as the only State Mint
remaining which produces coins on demand for anyone who brings in gold in the LBMA
standard kilogram form. They have minted more than 150 million Meskuks and Ziynet since
2002 alone - making them the most popular gold coins in the world! This represents 404 tonnes,
13 million oz used in production of the two coins, and puts into perspective the fallacious
reasoning and undeserved attention placed upon the topic of retail coins sale of Western nations.
Turkeys' citizens in fact purchase more gold than any other country in the world except for China
and India - whose populations dwarf its' mere 70 million by magnitudes! The poorly informed
group of western-based media pundits who offer their expert analysis of the wide world of gold
on a daily basis show not the slightest recognition of this great gap in their knowledge of their
area of “expertise,” content to cater to the ethno-centric biases of their readership.

There are three LBMA accredited private refiners in Turkey - Istanbul Gold Refinery and Nadir
Metal Rafineri A.S. have been lately joined by Atasay, a jewelry company with multiple retail
outlets across the country as well as refining and wholesale wings. I have bought kilo and half
kilo bars of silver from IAR, and plate gold of 99.9 purity from Nadir, knowing that they of a
quality no less than that produced by PAMP or ARGOR-HERAEUS Swiss refineries, although
they are almost unknown in the West.

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The plate foil format offered me the opportunity of selling in small pieces. I once sold a portion
to an assayist who quickly cut off and weighed 50 grams and paid in cash. Imagine trying to pull
that off in your LCS! But that was before I discovered the small sized gram gold offerings of
IAR & NADIR–which the post office now sells! From half a gram to 100 gram sized bars
packaged in a protecting cover can now take the place of the less standardized plate for my
domestic travels. These, and the Meskuk 36gr coin became my preferred purchase format for
gold.

The jewelry sector of the Turkish gold market is no less vibrant. The traditional wedding wrist
bracelets are by far the most common production, but the variety in any of the innumerable shops
in each and any town is very extensive. In the bazaars of Istanbul or Izmir, you can walk into a
shop to eyeball the cases, and if something catches your eye, the owner is quick to make
whatever arrangements needed to secure a sale. Often, he will invite you to sit down for a meal,
afterwards you will discuss exactly what modifications you might like made to a piece - his
workshop is located close enough by that his craftsman can have the job done in less than an
hour. I’ve sometimes traded Ziynets in for a piece of handcrafted jewelry than I just could not
leave without, knowing that the quality of the work – on gold of 22k – not the 14 or 16 k stuff
almost always used in the western jewelry industry, is cut above almost anything else in the
world!

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If gold and/or silver are your thing, living in a country such as Turkey, where more than ¾ of the
populace holds savings in some form of precious metals, is a whole different experience than that
of the western world… where 95% of people have no contact with the metals outside of
wristwatch or wedding band. And while it’s not surprising that the modern banking industry
would seek to convert its customers into the same kind of hapless victims of ignorance, the odds
of them succeeding would not be high – unless they were heavily STACKED in their favor!

A campaign of tv and print media ads was launched in 2012, pushing the benefits of ‘gold
deposit accounts, gold time deposit accounts, gold loans or gold credit cards. The big banks
competed with each other to draw in the most savings by having branch exchange days – where a
visiting assayist supplied by a refiner like Istanbul Altin Refinisi would measure the delivered
jewelry or coins and their value would be converted into “XAU” – grams of ‘gold’ held in an
account which the customer could access at will.

I’ve placed the world gold in italics above because the word, in the hands of the public relation
experts of the modern neo-liberal Turkey, has developed a ‘fungibility’ that gives new meaning
to the phrase ‘taking liberties with the truth!’ What goes into the banks in the form of that hard
asset we associate with the word gets transformed somewhere in the process of its’ re-definition
into a simulacra of itself – a virtual currency of neither gleaming luster nor durable form – a
currency in fact identical to the one that comes of ink presses not mines! The gold that come out
of those gold accounts, in other words, will be a representation of its’ value in paper. No matter
whomever says whatever to the contrary, that is the bottom line for anyone attempting to access
their ‘gold’ after selling it to the bank – for a sale it was- not a deposit, loan, or lease.

The reader will understand by now, how little this picture resembles the dreams I had formed of
being able to place my gram bars and Meskuk coins into the care of a custodian who would hold
them with promise of release at my pleasure – and afford me credit in more liquid terms in the
interim! Faced with this great gap in promise and execution, I was beginning to doubt my own
wits! To illustrate the manner in which this essential distinction is hedged around, a handy
example can be found on the pages of Ziraat Banks internet portal:

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With your Gold Deposit Account you can buy and sell gold in
TL and USD. Easily accessible on demand through our
extensive countrywide network of branches as well as our
Internet Branch.
• With your Gold Deposit Account you can buy and sell gold
exempt from income tax and free of any charge, with a
minimum transaction amount of 1 gram.
• Gold bought and sold through these accounts is of
1000/1000 purity. Announced gold prices are prices for
1000/1000 purity gold.
• Physical gold delivery is not available during account
opening or transactions. Similarly, physical gold payments
may not be made.
Should anyone have any difficulty with the translation, here’s the simple summation – you will
not get gold back from a Turkish Bank into which you ‘deposited’ gold. That is true today and it
was as true three years ago when the campaign began. Suggesting otherwise has been the habit,
as we shall see… of reporters, bank spokespersons, and government authorities for the whole of
that time.

I don’t wish to focus unnecessarily negative attention on Ziraat, a government-owned bank, for
using these methods of obfuscation, because at least they are showing this information - however
lacking in clarity - on their website. Banks like Garanti simply now avoid all mention of the
details in print – where they can be legally held responsible for undertakings and promises, and
leave it to the customer to find out in the end that they were led to believe something just not
true! I can say that there were, a couple of years back, a great deal more pages on their website,
describing their gold offers than there are now – the ones I remember have clearly been taken
down, and unfortunately I was under no impression back then that there would need be made
screenshots of what would became evidence of their duplicity!

Notice that I mentioned that Ziraat Bank is government owned. That is true of several of the
largest operating banks in Turkey, Halk and Vakif being similarly direct ‘subsidiaries’ of the
state! If that does not complicate the picture enough for you, the largest “private” bank in the
country, ISbank, is 28% owned by the CHP – Turkeys’ largest present opposition party. The
AKP government has pursued a policy of favoring its adherents and bagmen in the commercial
world, such that many advertising and media companies have been either sold to or are under the
control of parties allied with the State… as a result, the interest of that State are often understood
to be identical to those companies’ interests. The potential for a dilution of objective reporting
standards should be obvious. If you thought there were sometimes ‘conflicts of interest’ with
western governments and their banking and financial sectors, you need to imagine a whole new
dimension to the issue to get a handle on Turkeys’ situation!

With this triad of interested parties – government, banks, and a media with close ties to both,
coalesced a common purpose. What might have been construed as financial fraud – and dealt
with as such by the financial authorities of the government tasked with protecting its citizens
from crime has instead been given complete carte blanc. This puzzling absence of oversight can
be attributed to one salient fact - that the government of the day was in a situation which highly
motivated search for a means of lessening its foreign exchange and reserve imbalances. The
transfer of private gold holdings onto the balance books of the Central Bank of Turkey was
identified as a sure means of doing just that! To which end, the banking sector was granted leave
by legislation to increase the amount of gold it could hold as reserves from zero to 10% - later to
20%; this proved so successful that it was ultimately raised to 30%.

To conclude this segment, what needed to be facilitated by this scheme - a grand transfer of real
wealth from the private domain into the hands of financiers and the government - required the
trust of the populace that its’ government was properly supervising the promises of the banks.
There was, instead, a common interest in fomenting a perception about the monetization scheme
that was, shall we say, less than wholly accurate! It took me several years to fully grasp that fact,
and cut through that natural credulity which had given the benefit of the doubt to ‘the authorities.

Part Three will detail the winding road to reaching that realization!