Turkey's lira plunged as much as 14 percent on Friday as worries about President Tayyip Erdogan's influence over monetary policy and worsening US relations snowballed into a market panic that also hit shares of European banks.
Erdogan responded by telling Turks to exchange gold and hard currency into lira, framing the crisis as a "national battle" against economic enemies.
The sell-off has deepened concern about exposure to Turkey, particularly whether over-indebted companies will be able to pay back loans taken out in euros and dollars after years of overseas borrowing to fund a construction boom under Erdogan.
Erdogan's characteristic defiance in the face of the crisis has further unnerved investors. The president, who says a shadowy "interest rate lobby" and Western credit ratings agencies are attempting to bring down Turkey's economy, appealed to Turks' patriotism.
"If there is anyone who has dollars or gold under their pillows, they should go exchange it for liras at our banks. This is a national, domestic battle," he told a crowd in the northeastern city of Bayburt. "This will be my people's response to those who have waged an economic war against us."
The lira, which has lost a third of its value this year, fell again on his comments and was trading at around 6.05 to the dollar after he spoke, nearly 9 percent weaker on the day.
"The dollar cannot block our path. Don't worry," Erdogan assured the crowd.
That is unlikely to mollify investors who are also worried by a growing dispute with the United States. The NATO allies are at odds over the detention in Turkey of US evangelical pastor Andrew Brunson on terrorism charges.
The tensions with Washington have, for investors, underscored Turkey's authoritarian trajectory under Erdogan.
"The basic reason the exchange rate has gone off the rails is that confidence in the management of the economy has disappeared both domestically and abroad," said Seyfettin Gursel, a prominent economist and a professor at Turkey's Bahcesehir University.
"First of all, confidence needs to be regained. It is obvious how it will be done: since the final decision-maker of all policies in the new regime is the president, the responsibility of regaining confidence is on his shoulders."
The lira briefly fell as much as 14.6 percent -- its biggest one-day drop since early 2001 -- before paring losses. Shares of European lenders also dropped, hit by concern about their Turkish exposure.
Turkey’s sovereign dollar-denominated bonds tumbled with many issues trading at record lows. Hard currency debt issued by Turkish banks suffered similar falls.
Meanwhile the cost of insuring exposure to Turkey’s sovereign debt through five year credit defaults swaps has spiralled to the highest level since March 2009, topping levels seen for serial defaulter Greece , which has three bailouts in the last decade.
Finance Minister Berat Albayrak -- Erdogan's son-in-law, appointed last month -- was announcing the government's latest plan for the economy. Turkey would adopt a new approach under its executive presidency, one that would be sustainable and based on a "strategic mentality", he said.
The currency has fallen more than 35 percent this year after losing nearly a quarter of its value in 2017. This week alone, it has lost about 15 percent. Such relentless depreciation drives up the cost of imported goods from fuel to food for ordinary Turks.
"The situation of Turkey cannot go on for much longer -- I think they will have to intervene," Cristian Maggio, head of emerging markets strategy at TD Securities, adding that the intervention needed to be "drastic".
"Turkey is playing a very dangerous game. They keep lagging behind the curve and the pace of the depreciation and the penalty that the market inflicts on Turkey when it sells off is increasing at a more than linear pace, almost exponentially."
Erdogan, a self-described "enemy of interest rates", wants cheap credit from banks to fuel growth, but investors fear the economy is overheating and could be set for a hard landing. His comments on interest rates -- and his recent appointment of his son-in-law as finance minister -- have heightened perceptions that the central bank is not independent.
The central bank raised interest rates to support the lira in an emergency move in May, but it did not tighten at its last meeting.
While Turkey and the United States disagree over a host of issues, the most pressing disagreement has been over Brunson and the detention of other US citizens in Turkey. A delegation of Turkish officials held talks with their counterparts in Washington this week but there is no sign of a breakthrough.
While there was no statement from the Turkish side, US State Department spokesperson Heather Nauert said wide-ranging conversations had been held.
"I would say we would define progress as Pastor Brunson being brought home," Nauert said.