The Turkish central bank on July 20 sold 4,002 units of USD/TRY futures contracts due August 2020 along with 32,531 contracts due October 2020 and 1,477 due December 2020 on the Borsa Istanbul Derivatives Market (VIOP), BloombergHT reported.

Each contract was worth $1,000 and the total value equalled $38mn.

T.C. MERKEZ BA / Turkish central bank (@CanEmrahYILMAZ).

The central bank cannot default on the contracts as the seller pays the difference between the figure stated on the contract and the USD/TRY rate to the holder of the contract at maturity in Turkish lira.

No FX transactions occur between the sellers and the buyers of the contracts.

On August 31, 2018, following the Turkish currency crisis earlier in the month, the central bank entered into shorting futures contracts at the VIOP.

It shorted a total of $6bn of contracts within 2019 and all contracts were closed in December, @e507, a prominent Twitter account providing insights into the Turkish markets, observed.

BloombergHT outlined how the central bank’s $55bn of open swap stock reached 61% of its $91bn worth of gross international reserves, $50bn of FX and $41bn of gold, as of end-May, according to the latest available data.

State lenders’ net FX deficit, meanwhile, reached $9.3bn as of July 10.

While the central bank and state lenders’ short FX position is booming, USD/TRY volatility has fallen to interestingly low levels for a currency that is officially subject to a floating exchange rate regime.

USD/TRY 1-month historical volatility (BloombergHT).