War, Risk, and Gold: The Turkish War of Independence and Ottoman Empire

After the end of the First World War in November 1918, the Allies were involved in a military campaign in the Ottoman lands, leading to a national resistance by Turks that would end in 1923. It is relevant to provide actual information on the outcomes of the Turkish War of Independence, since it was a longlived event that paved the way for further problems on the belligerents’ economies. Using unique data for the value of the gold from 1919 to 1925 at the İstanbul bourse, our analysis complements the historical arguments as historians may find political risks difficult to quantify. We observe that in 1921 the Turkish victories created expectations on the part of traders that the war could end soon, as is manifested in exchange rate fluctuations. The Turkish economy would have experienced higher financial instability with the Allies’ occupation and resistance in 1920, creating a lower chance to return the pre-war gold content of the belligerents’ currencies.