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Ukraine’s currency policy is killing confidence in the hryvnia

The National Bank prints the hryvnia to finance the vast majority of the budget deficit by printing, but such policy leads to devaluation and inflationary pressure, said the head of the National Bank of the Ukraine Kirill Shevchenko.

   
June 2, 2022, 08:30
Business & Energy
Ukraine’s currency policy is killing confidence in the hryvnia

KIEV (Realist English). The monetary financing of the state budget and the inability to maintain the exchange rate on the cash market kill confidence in the hryvnia, the head of the National Bank of Ukraine Kirill Shevchenko believes.

“In part, this pressure is restrained by the fixation of the non-cash exchange rate and the strengthening of currency restrictions. However, to do this, the National Bank spends scarce international reserves. This reduces confidence in the stability of the hryvnia and strengthens devaluation expectations.” points out Shevchenko in the column for the publication zn.ua.

Shevchenko notes that the National Bank prints the hryvnia to finance the vast majority of the budget deficit by issuance, but such a policy leads to devaluation and inflationary pressure.

“This pressure is partially restrained by the fixation of the non-cash exchange rate and the strengthening of currency restrictions. But for this, the National Bank spends scarce international reserves. This reduces confidence in the stability of the hryvnia and strengthens devaluation expectations.” he stressed.

In his opinion, sales of international aid receipts on the foreign exchange market only partially solve this problem, since these funds are mainly credits, and they will have to be returned:

“As a result, expectations about the future will not improve. The longer the imbalances accumulate, the greater the loss of the hryvnia’s value and the longer the restoration of confidence in the national currency. Other things being equal, such conditions will need higher interest rates and longer use of currency restrictions in the future. This will constrain the economic potential.”

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