Today, on September 2 we celebrate the anniversary of establishment of Ukrainian currency - hryvnia. The first new banknotes appeared early in September of 1996, and the old ones, kupono-karbovanets, were withdrawn from circulation within the shortest time possible - by September 16, 1996. The total amount in notes introduced into circulation made more than 3.1 billion hryvnias. Many experts agree that introduction of hryvnia enabled to stabilize the financial system of the country and helped out to overcome the downfall of 90s, which in turn led to the recovery and stabilization of economic performances by 2000-2001.
Present situation...
Similar effect can be observed in the last years. Currency exchange rate has been stable for years - 7.9-8.1 UAH/US dollar, which is an important factor of control of inflation and economy predictability. In this respect, some experts say that in 2012-2013 many capitals deliberately weakened national currencies to support export volumes. It is considered a common practice in the world, but economist Vitaly Kulik opposes that such approach has its costs, one of which is upsurge in prices, fixed in hryvnia. "Many countries aim consciously at this, but in Ukraine it means serious impact on social policy. Thus, it is obvious that the authorities do not agree to planned devaluation fearing its social effects."
Indeed, in 2012 the core inflation in the country made only 0.8%, and since the beginning of this year it is close to zero. Moreover, deflation of 0.1% was registered in July. As a result, the population loses interest in foreign currency. According to the National Bank, in June-2013, banks bought foreign currency from population for $1.695 billion and sold for $1.662, therefore forming positive balance.
In April-July period, net proficit of foreign currency sale by population reached $300 million, president of Ukrainian analytical center Oleksandr Okhrymenko told ForUm. According to him, "it means very dedollarization. In August the tendency continued and we would see its results in September. The first half of August showed that active sale of currency in cash reduced the currency exchange rate. Moreover, from September 1 cash payments are limited to 150 thousand hryvnias maximum, which means real estate transactions will be carried out in hryvnias, and the amount of currency in hand will decrease."
In this respect, financial experts of Dragon Capital company note that no negative tendencies are expected on the currency market this autumn. Thus, analyst of the debt securities sales department of Dragon Capital Serhiy Fursa says that exchange rate movement by two kopeks to any side is considered a significant event on the currency market, but such movements are cyclical, and in general hryvnia has not been moving for a long time. Coming autumn will change this situation.
... and plans for the future
The Independent association of banks of Ukraine (NABU) adds that expected record-breaking yield and export recovery also assist to the stability of national currency in August-September period. Effect of these factors will last till the yearend, and the authorities will continue the policy of economy dedollarizarion, NABU executive director Serhiy Mamedov believes. Moreover, he says that income and deposits in hryvnia currency become more and more profitable amid reduction of deposit rates in foreign currency.
Thus, it is possible that by the yearend the share of deposits in hryvnia will grow from current 55% to 57%, by means of additional inflow of about UAH 30 billion deposits. In the second quarter of 2013 the amount of deposits of natural persons in domestic banks grew by record-breaking 24.2 billion hryvnias. The terms of deposits have increased by 5%, which is an important indicator of trust in the banking system.
Smart market policy of the National Bank plays a considerable role in such tendencies, Kulik believes. According to him, it concerns not only effective maintaining of exchange rate stability and dedollarization, but also measures on promoting crediting. As known, on August 13 NBU reduced the basic discount rate from 7% to 6.5%, and as a result, banks have a possibility to reduce interest rates for population.
Director of the general department of the monetary policy of the NBU Olena Shcherbakova informed that decrease in the discount rate became possible due to the absence of inflation in Ukraine, as well as due to positive market expectations. "We estimate this as an indicator of public confidence in our banking system. Reduction of the NBU discount rate would lead to the cheapening of credits and, consequently, to an increase in lending to Ukrainian economy."
Summing up, we want to cite famous financial expert Roman Shpek, who believes that hryvnia has something to be respected for. "Thanks to monetary and exchange rate policy of the National Bank we have price stability and low inflation. We have to complete the measures on dedollarization of economy, and we should get used to the fact that prices for land, cars, real estate, etc. are set in hryvnias. If during the financial crisis people had held their savings in national currency its rate of return would have been higher than of foreign currency. Thus, it is the matter of not only civil consciousness, but usefulness as well," the specialist says.
Well, there are grounds to believe that no currency and exchange rate disasters should be expected in the near future. Moreover, expected recovery and improvement of economy in 2014 will maintain our financial system stable and reliable, which means no financial "end of the world" is coming. Happy birthday, hryvnia! Many happy returns!
Note:
As of July 1, 2013, the total amount of Ukrainian currency in cash (banknotes and coins) in Ukraine made 214.9 billion hryvnias.
Andriy Boyarunets
Present situation...
Similar effect can be observed in the last years. Currency exchange rate has been stable for years - 7.9-8.1 UAH/US dollar, which is an important factor of control of inflation and economy predictability. In this respect, some experts say that in 2012-2013 many capitals deliberately weakened national currencies to support export volumes. It is considered a common practice in the world, but economist Vitaly Kulik opposes that such approach has its costs, one of which is upsurge in prices, fixed in hryvnia. "Many countries aim consciously at this, but in Ukraine it means serious impact on social policy. Thus, it is obvious that the authorities do not agree to planned devaluation fearing its social effects."
Indeed, in 2012 the core inflation in the country made only 0.8%, and since the beginning of this year it is close to zero. Moreover, deflation of 0.1% was registered in July. As a result, the population loses interest in foreign currency. According to the National Bank, in June-2013, banks bought foreign currency from population for $1.695 billion and sold for $1.662, therefore forming positive balance.
In April-July period, net proficit of foreign currency sale by population reached $300 million, president of Ukrainian analytical center Oleksandr Okhrymenko told ForUm. According to him, "it means very dedollarization. In August the tendency continued and we would see its results in September. The first half of August showed that active sale of currency in cash reduced the currency exchange rate. Moreover, from September 1 cash payments are limited to 150 thousand hryvnias maximum, which means real estate transactions will be carried out in hryvnias, and the amount of currency in hand will decrease."
In this respect, financial experts of Dragon Capital company note that no negative tendencies are expected on the currency market this autumn. Thus, analyst of the debt securities sales department of Dragon Capital Serhiy Fursa says that exchange rate movement by two kopeks to any side is considered a significant event on the currency market, but such movements are cyclical, and in general hryvnia has not been moving for a long time. Coming autumn will change this situation.
... and plans for the future
The Independent association of banks of Ukraine (NABU) adds that expected record-breaking yield and export recovery also assist to the stability of national currency in August-September period. Effect of these factors will last till the yearend, and the authorities will continue the policy of economy dedollarizarion, NABU executive director Serhiy Mamedov believes. Moreover, he says that income and deposits in hryvnia currency become more and more profitable amid reduction of deposit rates in foreign currency.
Thus, it is possible that by the yearend the share of deposits in hryvnia will grow from current 55% to 57%, by means of additional inflow of about UAH 30 billion deposits. In the second quarter of 2013 the amount of deposits of natural persons in domestic banks grew by record-breaking 24.2 billion hryvnias. The terms of deposits have increased by 5%, which is an important indicator of trust in the banking system.
Smart market policy of the National Bank plays a considerable role in such tendencies, Kulik believes. According to him, it concerns not only effective maintaining of exchange rate stability and dedollarization, but also measures on promoting crediting. As known, on August 13 NBU reduced the basic discount rate from 7% to 6.5%, and as a result, banks have a possibility to reduce interest rates for population.
Director of the general department of the monetary policy of the NBU Olena Shcherbakova informed that decrease in the discount rate became possible due to the absence of inflation in Ukraine, as well as due to positive market expectations. "We estimate this as an indicator of public confidence in our banking system. Reduction of the NBU discount rate would lead to the cheapening of credits and, consequently, to an increase in lending to Ukrainian economy."
Summing up, we want to cite famous financial expert Roman Shpek, who believes that hryvnia has something to be respected for. "Thanks to monetary and exchange rate policy of the National Bank we have price stability and low inflation. We have to complete the measures on dedollarization of economy, and we should get used to the fact that prices for land, cars, real estate, etc. are set in hryvnias. If during the financial crisis people had held their savings in national currency its rate of return would have been higher than of foreign currency. Thus, it is the matter of not only civil consciousness, but usefulness as well," the specialist says.
Well, there are grounds to believe that no currency and exchange rate disasters should be expected in the near future. Moreover, expected recovery and improvement of economy in 2014 will maintain our financial system stable and reliable, which means no financial "end of the world" is coming. Happy birthday, hryvnia! Many happy returns!
Note:
As of July 1, 2013, the total amount of Ukrainian currency in cash (banknotes and coins) in Ukraine made 214.9 billion hryvnias.
Andriy Boyarunets
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