"If they have their dollar, we have the people, we have Allah, " he said.
Mr Brunson was moved to house arrest in July after spending nearly 20 months in a Turkish jail. Trump, who had secured the release of a Turkish woman activist being held by Israel and just days earlier he had been exchanging fist bumps with Erdogan at a North Atlantic Treaty Organisation summit in Brussels, took it as a personal affront. That drained investor confidence in the central bank, leading to a further sell-off of the currency. Those words will further alarm many investors, suggesting that Turkey will neither impose a conventional economic programme to protect its currency nor find a way to come to terms with the U.S. over a tangle of issues that have brought them to loggerheads - chiefly, the jailing of United States missionary Andrew Brunson on terrorism charges.
Observers have noted how fighting for Mr Brunson's cause is likely to be popular with Mr Trump's evangelical base ahead of crucial mid-term elections this November.
Turkey's economy is regarded as fragile because of its high debt, which the worldwide Monetary Fund estimates is 50 percent of its gross domestic product.
Both currencies added to losses after U.S. President Donald Trump said he had authorized a doubling of tariffs on steel and aluminum imports from Turkey. Prices are already up 16 percent since past year and this week's drop will make that worse.
The prospect of a deal for Brunson's release appeared high as Turkish officials traveled to Washington this week, but the deal apparently fell apart over last-minute Turkish demands.
Erdogan added that Washington had always "failed to understand and respect the Turkish people's concerns".
"Do not worry!" He said Turkey was not afraid of "threats" and added Turkey had "alternatives" for economic cooperation in many places "from Iran, to Russian Federation, to China and some European countries".
"Immediately give these to the banks and convert to Turkish lira and by doing this, we fight this war of independence and the future".
Erdogan said during an address to supporters: "Change the euros, the dollars and the gold that you are keeping beneath your pillows into lira at our banks. This is a national, domestic battle", he told a crowd in the northeastern city of Bayburt.
On Friday Turkey's finance minister and Erdogan's son-in-law Berat Albayrak unveiled a new economic approach, but it didn't do much to help the slipping lira.
It argued that the country accounted for less than 2 percent of group revenues and a 10 percent fall in the lira would affect its CET1 ratio - capital that must be set aside as a buffer against financial shocks - by only around 2 basis points.