Turkey's currency, the lira, has collapsed to an all time low against the dollar, leading to a huge sell off in world markets and the prospect that Turkey's economy may drag the rest of Europe down with it.
Turkish President Recep Erdogan dismissed concerns about the crisis, saying "we have our god."
The lira hit fell more than 12 percent in value to reach more than six lira to each dollar on Friday morning. At around 5:00 ET, the currency had risen back to $5.911. As recently as April one dollar bought about four Turkish lira.
The latest bout of selling comes after a Turkish delegation returned from the United States with apparently no progress on the detention of a U.S. pastor. The evangelist, Andrew Brunson, is charged with supporting a group blamed for an attempted coup in 2016.
President Donald Trump said in July that the U.S. would place "large sanctions" on the country for the pastor's detention.
Late Thursday, Turkish President Recep Erdogan said he will stand up to the pressure.
"There are various campaigns being carried out. Don't heed them," Erdogan said. "Don't forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now," Erdogan told supporters.
Some European banks may be affected by the collapse but some analysts are downplaying the long term effects of the crisis.
Speaking to CNBC's "Squawk Box Europe" Friday, Timothy Ash said the FT report was "sensationalist" as any losses incurred by the banks would be by local subsidiary branches who had invested using Turkish lira and not U.S. dollars.
He added however that while banks in Turkey remained in reasonable shape, the country did have a problem with its balance of payments that has occurred because the economy had been allowed to overheat.
"Ultimately now, there is zero credibility in the Central Bank of Turkey and zero credibility in Turkish policy making. Whatever they do, the market doesn't believe them," Ash said.
Turkey is suffering from rampant inflation, with prices rising 16% in July alone. Erdogan has said that interest rates shouldn't rise any higher than the nearly 18% they're at now. But with rates apparently frozen, the Turkish central bank can't really support its own currency. This, along with the threat of American sanctions, resulted in the massive sell off.
Erdogan is asking citizens to convert their dollars and other foreign currencies into lira. Good luck with that, Erdy. Who in their right mind would trade the safety and stability of the dollar for the rapidly disappearing Turkish lira?
Yes, but they still have their god.