The value of the Ukrainian hryvnia is experiencing a notable decline, with the dollar and euro rising sharply, despite the absence of significant economic justifications for such a trend. The National Bank of Ukraine (NBU) possesses ample resources to stabilize the currency but appears to be allowing the hryvnia to depreciate intentionally.
Main Points:
- Market Paradox: The interbank market remains stable, yet the dollar’s value continues to increase, counter to positive economic indicators.
- NBU Strategy: The central bank is deliberately devaluing the hryvnia as part of a strategy termed “constructive uncertainty” to confuse buyers and mitigate speculative demand.
- Reserve Conservation: The NBU may be raising the exchange rate preemptively to avoid a rapid depletion of foreign currency reserves in case of a decline in currency supply.
- Budgetary Benefits: A higher exchange rate allows for more favorable conversion of Western financial aid, maximizing state expenditure coverage.
Despite the rising exchange rates, the interbank market is not in crisis. According to Andriy Shevchishin, the average daily currency deficit in recent days has been around $115 million. While this figure is significant, it is an improvement compared to late March, when it reached $170–200 million.
Shevchishin noted that the exchange rate is increasing despite positive signals such as the tax payment period, when businesses typically sell currency, and advancements in securing European financial assistance.
The NBU continues to maintain a state of uncertainty in the market. Taras Kozak, founder and president of the investment group “UNIVER,” explained that the central bank is intentionally devaluing the official exchange rate, adhering to principles of “constructive uncertainty” and “managed flexibility.”
Experts identify several potential motivations for the NBU’s actions:
Confusing Buyers: Kozak argues that if the exchange rate were predictably stable, citizens would rush to purchase foreign currency. Therefore, the NBU artificially creates fluctuations by lowering the rate and then sharply increasing it to deter speculative buying.
Market Pressure: The central bank may be responding to genuine demand from currency buyers or anticipating a future decrease in supply, leading it to raise the rate preemptively to preserve foreign currency reserves, according to Shevchishin.
Budgetary Considerations: Another motivation could be the progress in securing financial aid from the European Union. The Ministry of Finance sells the received currency to the NBU for hryvnias. A higher exchange rate results in a greater amount of hryvnias for the state budget from each tranche, which aids in covering current expenditures, Shevchishin explained.
Additionally, investors recently received payments for foreign currency government bonds totaling €188 million. Shevchishin speculated that this influx of currency may have reduced its availability in the interbank market, contributing to the rise in exchange rates.
However, Kozak considers this factor to be minor. He emphasized that the government has sufficient foreign currency reserves and regular macro-financial assistance from partners meets the needs for servicing government bonds.
The Ukrainian hryvnia is experiencing a decline against major currencies, driven by strategic decisions from the National Bank of Ukraine. Despite positive economic indicators, the central bank's approach aims to manage market expectations and preserve foreign reserves.