Why was religion used as the basis of Turkey-Greece population exchange instead of language, ethnicity, etc.?

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Ataturk was not the architect of this exchange. The idea of protecting minorities in former Ottoman Empire came from the western Allies - according to the wiki article on the Lausanne Conference, second-priority goals of Britain included "measures for the protection of the minorities in Turkey". Moreover, the article you linked names Fridjof Nansen, high commissioner for refugees of the League of Nations, as the architect of the exchange.

On the other hand, for Turks this matter was not a priority - in fact, Turkish diplomats used acceptance of this point as a leverage to gain leeway in other cases (this article cites Δ°smet Pasha answering to Lord Curzon's accusation of trying to break down the discussion:"If there is a threat in these words, and if Turkey wanted to be held responsible for this cessation, then this matter should not be handled as such. Because we had already agreed upon the rights of minorities before Lord Curzon brought it forward. In any way, the Turkish delegation did not raise difficulties. So, despite this, if the minority problem wanted to be still used as a pretext, then when the truth is revealed, it would not only be the voice of Ankara who will be in favour of us, as Lord Curzon had guessed."). Thus, design of the transfer was left mostly on Nansen's hands. And whatinstruments could be used to that end? In 1923 Ataturk's government was just consolidating its power - secularisation would come only the next year. So, most Ottoman legal framework was still in place, and one part of it was the millet system - the closest thing to national politics the Ottomans had. So it was used as the basis for the transfer.

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Well, the 1923 population exchange between Greece and Turkey was arranged by the European Powers under The Treaty of Lausanne. Kemal Ataturk and Elefthertios Venizelos-(who I believe was the Greek Prime Minister at the time), were not the Prime Arrangers of this population exchange.

One has to understand the very tense atmosphere that existed between Greece and Turkey at that time. Just a year prior to the Greco-Turkish population exchange was The Great Fire in Smyrna, which was the culmination of an ethnic and religious cleansing campaign orchestrated by Kemal Ataturk. The aim was to ethnically, as well as religiously cleanse the centuries old Greek-(as well as Armenian) Christian residents of the city of Smyrna........and it succeeded. In September, 1922, the Greek Christian residents of Smyrna were forcibly uprooted from their homes in Smyrna and primarily relocated to neighboring Greece-(particularly, Athens). (Note: Smyrna and Izmir, are the same city, though named and identified in different languages).

For the remaining Asia Minor Greek Christian population, continuing to reside in Turkey-(primarily near The Black Sea region) since the 1922 Smyrna Catastrophe, was becoming increasingly and dangerously difficult. The Hellenic presence in the Turkish Black Sea region in the early-mid 1920's, posed both a religious, as well as an ethnic problem to the Kemalists. They expressed a strong adversity towards the Greeks of the Black Sea both in terms of their Orthodox Christian faith, as well as their Greek ethnic identity. One has to remember that religion and ethnicity were intertwined and in many ways, were "two sides of the same coin".

The same was probably true for the Turkish Muslim population in Northern Greece, whereby the region of Macedonia had only been part of the Modern Greek nation-state for approximately a decade and Greco-Macedonian nationalist sentiments were very high at that time. I suspect that being a Turkish Muslim in Greco-Christian Macedonia during the early-mid 1920's, was probably quite difficult, due to the widespread nationalism within the region.

During the mid-late 1920's, both the English and the French Empires were filling in the colonial vacuum within the Eastern Mediterranean and Southern Black Sea regions and wanted to maintain a level of peace in this part of the world, due to its close proximity to both the Near & Middle East, which, at the time, were under the colonial auspices of both the British and French Empires. By religiously and ethnically h*m*genizing both Greece and Turkey, the Southern Balkan region would be somewhat pacified and the British, as well as the French spheres of influence in the Near & Middle East, would remain geopolitically stable.

The 1923 Greco-Turkish Lausanne based population exchange was a labyrinthine way of the European Colonial Powers maintaining peace in a historically tense corner of the world. It was also a devastatingly difficult transformation for the residents-(on both sides) to initially undergo and experience. Though as time progressed, many began to assimilate into their new homelands and joined into the larger Greek nation or Turkish nation.

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