finance & markets

Saving private UAH

10.10.2014 | By Olena Hubar

Over the last 20 years Ukrainian financial system tested a variety of methods to stabilize the exchange rate, says head of the General Risk Management at the Finance & Credit bank Mykola Voitkiv. Even though our experience has not always been successful, it could be a subject matter in other countries. The problem is that Ukraine uses mostly administrative methods that provide instantaneous but very positive effects and eventually have a further negative impact on devaluation process

Bankers believe that the NBU has several examples on which they might focus to support hryvnya exchange rate. The 1990s currency crisis in Asian countries is the closest to the current financial situation in Ukraine, believes expert at the UniCredit Bank Tanteli Ratuvukheri. The presence of a large portfolio of troubled mortgages, high inflation rate, huge fiscal and trade deficits, depletion of foreign exchange reserves to support hryvnya, increasing devaluation expectations, distrust of the national currency and monetary policy, massive outflow of capital and intervention of the IMF.

Ukrainian form of organization of monetary relations is extremely different from the European financial system. European experience is not very applicable to Ukraine because control over the movement of capital is not allowed in the EU, says Istvan Hamecz, Chairman of the Supervisory Board of OTP Bank (former Director for Economic and Monetary Policy at the Central Bank of Hungary). For example, Hungarian regulator has only two options: it can adjust the exchange rate and then adopt a necessary interest rate, or allow the floating rate and set a free mode for formation of the interest rate.

Technically, Kyiv could and, most likely, will learn from the experience of the Asian countries, says Hamecs. However, your particularity lies in the fact that it refers not only to the financial and economic crisis. There is a process of physical destruction of economy and collapse of the state. Therefore, many solutions lie in political plane; and there has been almost no similar experience in the world, he adds.

Whatever the case, so far Ukraine is a holder of an absolute record for devaluation of the national currency among the former Soviet countries. Since the beginning of this year hryvnya has already devalued by 61.4%. For comparison, Russian ruble has lost only approximately 10% of its value against the US dollar, Kazakh tenge 18%, Kyrgyz som 10%, Belarusian ruble 4.2%, Moldovan leu 3.5%, Azerbaijani manat 2.2%, Armenian dram 1.1%, Uzbeki sum 1.8%.

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