EXPLAINER: Turkey's currency is crashing. What's the impact?

ANKARA, Turkey (AP) — Turkey’s beleaguered currency has been plunging to all-time lows against the U.S. dollar and the euro in recent months as President Recep Tayyip Erdogan presses ahead with a widely criticized effort to cut interest rates despite surging consumer prices.

As a result, families are struggling to buy food and other goods and the Turkish lira has lost around 40% of its value since the start of the year, becoming one of the world's worst-performing currencies.

Here is a closer look at the Turkish currency crisis and its impact on a country with eye-popping inflation:

WHAT IS GOING ON?

Turkey’s Central Bank has cut borrowing costs by 4 percentage points since September, in line with Erdogan’s wishes, even though inflation accelerated to around 20%.

Erdogan, who has been in power for some 19 years and has grown increasingly authoritarian, has long argued that high interest rates cause inflation, contrary to what economists generally say: that increasing rates will drive down prices.

The rate cuts have raised concerns over the bank’s independence, while the country’s unconventional monetary policy has spooked foreign investors, who are dumping Turkish assets. And Turkish citizens are rushing to convert their savings to foreign currencies and gold to protect them from soaring inflation.

“People bring their savings and always want to buy dollars. When will it end, where will this go? They’re panicking," said Hulya Orak, a currency exchange office worker. “People are constantly in panic mode and are using money that’s under their mattresses."

As a result, the Turkish lira, which had barely recovered from a currency crisis in 2018, has been weakening to record lows against the dollar and the euro.

It crashed to a record low of 13.44 against the American...