Naci Agbal has been hailed as a major force in pulling the lira back to a lower history.
Mr Erdogan replaced him on Saturday, the third central bank governor in less than two years.
Mr Agbal, who was elected in November, has been raising interest rates against the inflation rate of more than 15%.
The move came as a shock to local and foreign investors who praised the recent fiscal policy of Turkey’s central bank.
The appointment of Sahap Kavcioglu, a former banker and spokesman for the ruling party, sparked concerns over recent price increases.
The collapse of the shares on the Istanbul stock exchange, also raised concerns about the impact of Turkey’s borrowing costs.
Exchange trading was suspended for a while after a sharp fall in stock prices that began the spread of automated circuits.
After a sharp fall, the lira found itself standing at about 8% against the US dollar after Finance Minister Lutfi Elvan said Turkey would adhere to free market rules.
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“The authorities will be left with two decisions, either promising to use interest to stabilize markets, or to control finances,” said Per Hammarlund, chief strategist at SEB Research.
“Given the growing dictatorship that President Erdogan has used, monetary control seems to be the biggest choice.”
The lira was at one time the most influential currency in the emerging 2021 market, earning about a fifth of a dollar lower than the US dollar.
Last week, Turkish currency rose sharply after Mr Agbal raised interest rates by 2 percent, double the economic expectations.
Investors have been demanding that monetary policy beefed up in Turkey to reduce inflation, as prices rise sharply in the country.
There is now concern that Mr Erdogan’s decision to include Mr Kavcioglu in the post could undermine the profits made during Mr Agbal’s tenure.
Mr Kavcioglu is a well-known banking expert and former lawyer for the ruling party Justice and Development. He shares Mr Erdogan’s unusual view that high interest rates could raise inflation.
Turkey’s interest rate stands at 19% which attracts foreign investors to invest in cash.
In a statement on Sunday, the central bank said it would “continue to use monetary policy tools in line with its ultimate goal of achieving permanent inflation”.
Jeffrey Halley, chief marketing analyst at the Oanda exchange company, said President Erdogan had his own type of economy – Erdonomics.
“The basis of Erdonomics is that high interest rates lead to inflation, which is a thought that goes hand in hand with common economic theory everywhere,” Mr Halley told the BBC.
High interest rates lead to higher borrowing costs that prevent consumers from over-exploiting, while encouraging people to save. However, the worst is the slow economic growth.
“Mr Agbal was highly regarded for his efforts to stabilize inflation.”
Ulrich Leuchtmann, head of foreign finance at Commerzbank, said: “It is possible that the interest rate hike will also be allowed by Mr Erdogan in the lira-risk reduction category but recent developments should have shown investors that a stable monetary policy change is not expected,” he said.
“The effects of lowering interest rates may be devastating.”