Money in Wonderland
The National Bank explains the case of money printing
The principle of “you’re the fool” is nearly the most important element of political polemics in our country. By the way, it is used by all political forces with nearly the same result. Examples of this abound. The other day the leader of the Batkivshchyna party, the former Ukrainian Prime Minister Yulia Tymoshenko, now under attack of the former Audit Office (now the Ukrainian Audit Service) for the inefficient use of state funds and abuse of office, started up a campaign blaming the National Bank for the uncontrolled issue of hryvnias. On January 19 she called upon the Head of the National Bank of Ukraine Arbuzov asking him to “give away” his predecessor Volodymyr Stelmakh. “Relying in particular on the laws about the free access to information, adopted on the initiative of our political force, I would like to address the head of the National Bank of Ukraine and ask him to officially make public the figures of the money issue made in 2010,” the former prime minister told journalists. “If the head of the National Bank really controls NBU policy, if he realizes what his position is, I want him to make public the amount of printed money,” added Tymoshenko.
“The claims made by the leader of Batkivshchyna, Yulia Tymoshenko, concerning the uncontrolled money issue spread by the mass media, are absolutely groundless, they don’t correspond to the facts and they were aimed at creating negative public opinion,” answered the NBU through its website.
Its main point is that the money issue procedure in Ukraine is strictly regulated by the law and the NBU has no right to just print money. Yet it broke the law. We should just attentively read the abovementioned statement: “The NBU claims that there wasn’t any uncontrolled and groundless emission… (Notice that there isn’t a single word about an uncovered one. – Author.) The money issued by the NBU was directed to serve the real economic growth processes, the people’s savings and the business needs.”
However, NBU has some strong arguments: the increase of prices for consumer products was 9.1 percent in 2010, having considerably slowed down compared to 2009 (12.3 percent) and to 2008 (22.3 percent). It also adds that: “Any populist statements made by irresponsible politicians concerning the uncontrolled and uncovered money issue by the NBU are groundless and don’t correspond to the facts. We hope that the Ukrainian people won’t react to these political speculations.”
Meanwhile, the government hastened to help the head of the NBU, inexperienced in political showdowns. Prime Minister Mykola Azarov might have decided to take on a part of the NBU “guilt.” However, he talked about 2011: “For example, we decided to sell 500 million dollars of the currency reserves from the State Treasury accounts, I emphasize — not from the NBU accounts. This is our money that we borrowed to cover the temporary gaps caused by the imbalance between budget revenues and expenditures in the first half of January.” Besides, the prime minister also deliberately mentioned the state’s debt. “This year we’ll have to pay back 88 billion hryvnias. It’s an enormous amount — the price of the debts accumulated by our predecessors,” said Azarov. We have to admit that his position is quite strong. Suffice it to say that industry output increased by 11 percent last year. According to the experts, export-oriented industries have become the leaders of the revival: mechanical engineering (up 34.5 percent), the chemical industry (up 21.5 percent), and metallurgy (up 12.5 percent). Unfortunately this year, according to forecasts, the demand for our products won’t be that high and metallurgy output will only increase by 9-10 percent. Our last hope is the domestic market, which is still small. The government is deliberately trying to encourage the construction industry’s growth on the legislative level; in 2010 this industry was among those in stagnation. It may well be so that they will use the money issued by the government or the National Bank to stimulate this industry. However, during the recession, in all countries, both governmental and monetary authorities tried to inject more money into the economy. For example, Europe directed money to the automobile industry, and it is probably this money that has allowed some countries to gradually come out of the crisis while others are still in the midst of it.
Our own automobile industry is almost non-existant. That is why the government is supporting the construction industry. Certainly, the experts claim that Azarov’s government, as well as the National Bank, deserves the harsh criticism. “However, Tymoshenko’s accusation concerning them, looks like an undisguised lie,” says Borys Kushniruk. He thinks that Tymoshenko’s statement can be refuted within a couple of minutes based on the data analysis found on the official site of the National Bank. The economics expert explains that the NBU has two ways of issuing money. It can pay off its state domestic loan through commercial banks, refinancing and currency purchases. The last instrument, as Kushniruk emphasizes, is not completely bad, since the additional money issued by the NBU is covered by the foreign exchange. The transfer of the difference between the revenues and expenditures of the National Bank to the state budget can be seen as one more monetarist mechanism. There are no other choices, assures the expert.
At the same time the general amount of bonds in circulation has even decreased. Thus the government, having paid off its bonds, even contributed to the decrease of the general amount of hryvnias in circulation. The information about the bank’s refinancing confirm that the NBU hasn’t given a penny to the banks this year. Quite the contrary, it has raised funds through deposit certificates. Due to this more than 2.5 billion hryvnias were withdrawn from circulation.
We can admit that the government has sold its currency directly to the National Bank, says Kushniruk, noticing at the same time that due to the practice introduced by Tymoshenko and Azarov, the everyday information about the State Treasury account is not accessible. That is why the expert says that “this mechanism of the money issue shouldn’t be completely rejected.” At the same time he insists that it shouldn’t be only considered as a negative one. “Azarov’s government, just like the National Bank, deserves the harsh criticism,” repeats the expert and once again voices his idea that Tymoshenko’s statement looks like an undisguised lie. He admits that easily refutable accusations are a form of political struggle in our “wonderland” that only allow to build the supporters’ confidence.
