The Turkish lira fell around 4% against the dollar late Monday after Mr. Erdogan appointed his son-in-law as finance minister and put in place measures that could curb the independence of the country’s central bank. Investors also sold Turkish shares and debt, with yields on its dollar bond maturing in October 2028 rising from around 6.8% last week to about 7.15% recently, according to Tradeweb. Yields rise as prices fall.

“There’s a real risk that this spirals into a full-blown currency crisis,” said Paul McNamara, a portfolio manager at GAM Holding . “It’s got so many red flags that we’ve associated with economic crises…in the past.”

In such a crisis, a sharp slide in a currency threatens the government and local companies’ ability to pay foreign debt. Turkey has one of the highest levels of external debt for a developing country, at 53.4% of gross domestic product, according to data from the International Monetary Fund. Local companies have raised billions of dollars, leaving them and the wider economy vulnerable to a slide in the lira, which would make paying off that debt more expensive.

The lira has lost a fifth of its value this year as investors sold ahead of Mr. Erdogan’s June re-election, concerned he would erode the central bank’s independence and usher in looser monetary and fiscal policies. Mr. Erdogan has described high interest rates as “the mother and father of all evils,” stoking fears that his preference for lower rates could prevent the central bank from supporting the currency and tackling inflationary pressure.

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