The Turkish lira has taken a dramatic nosedive against the US dollar since last week after a major diplomatic fall out with Donald Trump.
The currency fell almost 9 percent in early trading, despite defiant words by president Recep Tayyip Erdoğan pledging action to reverse the slide.
Analysts are growing increasingly concerned the crash could be replicated in major global banking centres.
Banks in Spain, Italy and France are most at risk of contagion, as well as emerging markets such as Argentina and South Africa which are exposed to Turkish debt, according to analysts.
The lira has fallen more than 40 percent this year amid tension over Mr Erdoğan’s control over the economy and deteriorating relations with the US.
Mr Erdoğan has accused foreign countries of waging war on Turkey and said his government would respond with trade measures to reduce reliance on the dollar and US markets.
Major Turkish bank Garanti has responded to the crisis by blocking customers from open new foreign exchange positions, making it harder for people to seel lira for US dollars, pounds and euros.
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8.33am update: Albayrak pledges action
Turkish finance minister Berat Albayrak, who is also Recep Tayyip Erdoğan’s son-in-law, said he had an action plan ready to deal with the crisis.
He said: “From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market.»
8.01am update: Analysts issue crisis warning
Chris Weston, of online trading firm IG Market in Melbourne, warned global markets would be on edge as investors tried to assess the impact of the crisis on European banks which have lent money to Turkey.
He said: “The European Union’s financial watchdog has expressed concern about EU financial exposures to Turkey. And so, if it is a concern for this institution, then it should be for traders too.
“Turkey’s massive pile of corporate debt denominated in foreign currencies, but a rapidly sliding currency – and inflation that’s threatening to go exponential – is a toxic combination.”
07.34 update: Turkey on verge of recession
Andrew Kenningham, chief global economist at Capital Economics, said: “The plunge in the lira which began in May now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis.
“This would be another blow for emerging markets as an asset class, but the wider economic spillovers should be fairly modest, even for the euro zone.»