Paradise for profiteers
Why currency players take so much interest in Ukraine
Although national currencies are being devalued throughout the world, with its political instability Ukraine has become a veritable Mecca for currency speculators.
The upsurge of the dollar-to-hryvnia exchange rate to 1:10, which had previously seemed just a horror story, almost looked like a reality last week. The US currency’s rate reached the level of nine hryvnias and moved on toward ten. There were more than enough forecasts even six months ago that the dollar would cost ten or twelve hryvnias. But they began to come true only at the end of February. Anatolii Shapovalov, First Deputy Chairman of the National Bank of Ukraine, puts the blame on the irresponsible forecasts of politicians.
“It is mostly our political figures,” he said at a meeting of Prime Minister Yulia Tymoshenko with oblast council heads. “They say what the hryvnia rate will be but bear no responsibility at all. And what are people supposed to do if they hear that the rate will be twelve hryvnias?” he asked rhetorically.
“Just tell us that this won’t happen!” Tymoshenko suggested to Shapovalov.
As is often the case, the emotion-filled and seemingly unbiased assessments of politicians disguise the economic processes that they themselves begot. Or it is something that should have been done long ago but nobody is daring to do so. It is the National Bank itself that aroused the interest of businesses and individuals in the dollar, which is now ruining the hryvnia.
Yes, throughout the last year, the NBU governor Volodymyr Stelmakh called upon the populace to trust the Ukrainian national currency. In his instructions he stipulated the conditions under which it was more profitable to keep savings in hryvnias than in hard currency. Hryvnia deposit rates considerably (by one and a half times) exceeded hard-currency banking deposit interest rates. But the tactic of a sudden revaluation of the hryvnia at the dollar’s expense, to which the Tymoshenko cabinet and the NBU resorted twice, in 2005 and 2008, produced diametrically opposed results.
Abrupt downfalls of the dollar’s rate showed a very clear, if positive, dynamics of the national currency’s fluctuations. And this, like the smell of blood in the case of beasts of prey, drew the special attention of the world’s monetary speculators to Ukraine. Tellingly, George Soros, who once brought down the British pound sterling but is now considered a philanthropist rather than a financier, is evincing great interest in Kyiv. But could Soros have made his money in any other way than speculating on currency exchange rates?
The NBU is now accusing banks of financial speculations and bringing down the hryvnia’s rate. But half of the Ukrainian banks have long belonged to foreign financial organizations. For this reason, their actions aimed at collapsing the hryvnia are certainly receiving support from their maternal units abroad. The NBU made it very clear in 2008 that it would no longer maintain the hryvnia’s rate, thereby effectively inviting to Ukraine the few currency speculators who had for some reason forgotten about this country.
The refusal to announce a currency corridor for 2009 in the NBU’s “Main Directions of Monetary Policy” looked like a liberal step a year ago. The Ministry of Finance did the same in the 2009 budget, abandoning the principle of an average annual ratio between the dollar and the hryvnia. While ordinary people were delighted that Ukraine’s economy was becoming more liberal, the Ukrainian government, instead of preparing for the imminent hardships, was in fact inviting the current financial and economic storm to which it was clearly unprepared. Now the National Bank and the Cabinet are trying to shift the blame to one another.
The NBU is reproaching the Cabinet for the failure to establish a stabilization fund in the better years of Ukraine’s development, which could help weather the crisis now, as is the case in the West. In its turn, the government is accusing the NBU of currency market speculations. Obviously, both power-wielding institutions are to blame for Ukraine’s unpreparedness to effectively manage the crisis.
No matter what the NBU may say today, insisting that the dollar’s rate is overrated in Ukraine, and no matter how hard bankers may be calling upon individuals to keep their deposits in banks, nobody will believe them now that the hryvnia has fallen and deposits have been frozen. And it is not ruled out that Ukraine will have to revert to the policy of a state-guaranteed currency corridor. In any case, they are already taking some other steps reminiscent of the past: for example, they suggest reviving the practice of the compulsory selling of 50 percent of the exporters’ hard-currency earnings.
It will be extremely difficult, if at all possible, for parliament to pass this law owing to a very strong exporter-supporting lobby. The NBU, too, will have to think hard how and where resources can be found in order to guarantee an average annual rate of the national currency with respect to the dollar. The price for a belated action is always high. No matter who is to blame — the National Bank or the Cabinet — it is the depositors, i.e., the entire population of Ukraine, who will have to pay for everything.
