I do understand the basic concept of foreign reserves but I never knew they could be negative until I saw headlines about Turkiye’s reserves going negative, does that denote bankruptcy or what? How does that work?
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So, it doesn’t mean that Turkiye is out of money (bankrupt), it just means that they’re out of non-Lira currencies.
The simple explanation is that Turkiye was worried about the value of the Lira crashing after their election, so they sold off a bunch of their foreign currencies in exchange for Lira – that kept the demand for Lira inflated. In doing this, though, they entirely depleted their foreign currency reserves, so now they essentially don’t have any non-Lira currency.
This can cause issues if Turkiye has USD/Euro/GBP denominated debt – if someone lent the Turkish government USD, they want to be repaid in USD. As long as Turkiye can continue to buy USD, they should be fine, even if they lose money on exchange rates.
This is a super simplified explanation, also, but it generally covers the situation.
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