The Central Bank of Ukraine Orders Selling of Foreign Currencies to Support hryvnia

In a quest to stabilize the balance of payments in the country, the Central Bank of Ukraine (The Natsionalnyi Bank Ukrainy) is going to order the exporters of this former part of Soviet Republic to sell the foreign currencies that they earned from abroad. The Natsionalnyi Bank Ukrainy wants these companies to convert half of its foreign currency revenue to hryvnia, the major currency of this European country. The news was confirmed by Oleksandr Kutereshchyn, the spokesperson of The Natsionalnyi Bank Ukrainy. Not only companies, but individuals who receive more than 150,000 hryvnia from the foreign countries will also need to participate in these sales.

The International Monetary Fund has asked the Ukraine Government to come up with an exchange rate that is more flexible. As the Central Bank decided to prop up the hryvnia, last month, the foreign reserves of the country has seen a drop of 8.5% and is currently at $26.8 billion. This marks the lowest foreign reserve of Ukraine since May, 2010. Incidentally, as the Ukraine Government didn’t approve of rising utility prices, the International Monetary Fund decided to freeze the $15.4 billion worth Loan Program of the country in March, last year.

According to a treasury executive of Citigroup Inc.’s Kiev based unit, Vladislav Sochinsky, the pressure on the exchange rate is probably going to ease with this measurement of The Natsionalnyi Bank Ukrainy. He also stated that this norm is in no way a permanent solution, but this will definitely have a role in stabilizing the payments. He stated that the Central Bank should progress with the IMF and take up new programs for better balancing of payments if they look out for a permanent solution.

Amidst all these news, hryvnia saw increase in its prices. It is currently traded at 8.178 per USD, from the 8.171 per USD, when the day started. Between September, 2008 and September, 2009, the currency has lost more than 44.61% in comparison with USD. However, thanks to support provided by the Central Bank, the currency stabilized in the next 2 years. In 2012, hryvnia has declined by 1.6%.

The hryvnia is already under pressure due to the deficit of the current account of Ukraine widening further. The Current Account, incidentally, is a measurement of money flowing in and out of any country. In the first 9 months of 2012, this gap is at $9.3 billion. The same gap was of $5.9 billion in the first 9 months of 2011. According to analysts, this gap is mainly the result of slump in steel export all over the world. The rise of energy imported costs also attributed to this gap. On 6th November, this obligatory conversion of foreign exchange currencies was approved by the lawmakers of Ukraine.

This new law of selling foreign currency will stay in effect for the next 6 months, as confirmed by the Central Bank. This sets a 90-day term for payments for import and export operations to be settled. A bill was introduced by Ukraine President Viktor Yanukovych’s Party of Regions on 16th November to put tax on the foreign exchange sales of an individual selling more than 150,000 hryvnia per month. The earnings will go straight to the Pension Fund, as stated in the bill. However, if an individual receives less than 150,000 hryvnia from other countries in a month and sell the same on an immediate basis, he can refrain from paying these extra taxes.