The fall of the hryvnia began in 2014 - the active phase of the Maidan. However, experts express the opinion that all the prerequisites for the fall of this currency have been since the beginning of 2013 due to the extremely weak state of the economy, which has not recovered since the crisis of 2008-2009. Therefore, the exchange rate was maintained artificially by selling foreign currency from the reserves of the Central Bank of Ukraine.
Hryvnia devaluation. What it is?
A devaluation is a process in which the price of a national currency falls against foreign currencies, that is, a monetary unit depreciates.
In other words, the devaluation of the Ukrainian hryvnia is a decrease in its exchange rate against foreign currencies.
Devaluation can be open and hidden. With an open devaluation, the Central Bank announces this, and cash impairment is subject to exchange or withdrawal. When hidden, the state reduces the value of the national currency. Money is not exchanged or withdrawn.
Effects
Devaluation results can be positive and negative.
Among the positive are:
- increased domestic demand;
- decrease in expenses of gold and foreign exchange reserves;
- incentive for export.
However, the negative consequences are very significant. In case of devaluation, the following occurs:
- inflation is provoked;
- citizens' confidence in the national currency is nullifying;
- due to higher prices, product imports are declining;
- people seek to withdraw all their money from bank accounts;
- buying activity is declining due to lower wages and pensions.
Ukraine. Hryvnia devaluation
In February 2014, a devaluation of twenty-five percent occurred. Instead of eight hryvnias for one dollar now had to give ten. And in May, despite the fact that the Central Bank’s reserves were reduced by six billion, the devaluation of the hryvnia amounted to fifty percent.
At the same time, Ukraine received the first tranche of seventeen billion dollars. The devaluation of the hryvnia has therefore stopped. Nevertheless, the situation continued to deteriorate. Crimea was annexed to Russia, a civil war continued in the Donbas, and enterprises located in the territories that proclaimed themselves the Donetsk People’s Republic and the Luhansk People’s Republic stopped paying taxes to Kiev.
So, in August there was another devaluation of the hryvnia in 2014. The course fell from twelve hryvnias per dollar to fourteen and a half. Thanks to the actions of the Central Bank, the ratio softened somewhat, and before the elections, at the expense of the Ukrainian Gold and Currency Fund, the exchange rate was fixed at the rate of twelve hryvnias and ninety-five kopecks per one US dollar. However, after the election, support for the Ukrainian hryvnia ended, the course hesitated again.
Over a week, the dollar rose to sixteen with a small hryvnia, and the devaluation of the hryvnia in Ukraine (2014, end of the year) amounted to one hundred percent.
International Monetary Fund
The main reason for the deterioration of the economic situation is the adoption of all the requirements of the International Monetary Ford. Seeking to obtain IMF loans, Kiev went for free exchange rate formation, raising gas tariffs and other utility bills for the population, which caused a panic of the population. People ceased to trust their state, took money from deposit accounts and bought currency in bulk.
Economic crises in Ukraine have happened before. In the late nineties, the country was affected by the Russian crisis, and in 2008 - by the global one. In those years, the devaluation of the hryvnia also took place. However, the state did not refuse the currency corridor, as was done in 2014.
Such a measure could only be successful in a state with a strong economy and a national currency backed by gold or goods. In the case of Ukraine, the economy was not characterized by reliability and stability. Experts have repeatedly expressed their opinion that the issue of hryvnia without control by the National Bank will cause a flow of capital - they will try to purchase foreign currency for the hryvnia.
Letting go of the hryvnia. Effects
And so it happened. Money was withdrawn from deposits, and the Central Bank at that time issued funds to other banks in order to maintain liquidity. The exchange rate began to lead speculators.
In August, the National Bank bought Naftogaz Ukraine government bonds for one hundred billion hryvnias. The proceeds were transferred to foreign currency, which also contributed to a new jump in prices. Thus, the Central Bank, having no opposition mechanisms, helped to increase the exchange rate itself.
In addition, enterprises exporting products, tried to keep the foreign currency received as long as possible, speculating on the course. Foreign exchange earnings were therefore reduced.
Businessmen tried to conduct settlement operations outside of Ukraine, using various schemes so that local banks could not affect capital. And they did not seek to import the money received from settlements.
At the same time, investment was catastrophically reduced. Investors sought by hook or by crook to remove their capital from an unpredictable and alarming zone, where the risks of investing money were huge. According to state statistics, since the beginning of the year Ukraine has lost eleven point fourteen hundredths of billions of direct investments, which amounted to about twenty percent of the total amount of investment injections.
Anti-crisis measures
All experts unanimously say that the devaluation of the hryvnia for the most part was due to the release of the hryvnia and the abandonment of the fixed rate. And that the first step to stabilizing the currency will be to abandon the floating rate and return to a fixed rate.
As a general anti-crisis measures, it was proposed to pursue a more stringent policy aimed at minimizing speculative operations and increasing exports of products, especially the agricultural sector. There were also proposals to cancel foreign exchange auctions and increase the discount rate to projected inflation.
Some Ukrainian experts believe that the National Bank has all the necessary funds to overcome the currency crisis, but for some reason does not use them. But no matter what the National Bank does, in early 2015 the collapse of the hryvnia worsened, the rate reached thirty hryvnias for one dollar.
Consequences of the hryvnia devaluation in 2014
Economic analyst Alexander Okhrimenko notes that during the crisis period, the average wage is about one hundred dollars, and may be reduced to fifty. Only the most active can survive in the current environment. The rest will become poor.
The cost of loans in foreign currency increases, they are paid poorly or not paid at all. This is the result of such an unpleasant phenomenon for the economy as the devaluation of the hryvnia. In 2014, banks made a fresh decision - they began to form so-called short positions when more currency was sold than bought. By the end of 2014, short positions amounted to six billion dollars. But as a result, now banks cannot purchase dollars at thirty hryvnias and incur tremendous losses.
To stabilize the situation, Okhrimenko proposes to pursue a transparent policy of refinancing banks; issue currency treasury bills for all, and increase the gold and foreign exchange reserves with the proceeds; exempt deposits from taxes and increase rates on them, as well as lift restrictions on the Central Bank in the foreign exchange market.
It is assumed that Ukraine will be able to return to the level of 2013 in about 5-7 years. And constructive changes will become possible only after solving problems in the east of the country.
Investors in Ukraine are mainly its oligarchs. They are fighting among themselves for power and property. Therefore, investments from outside can only come after the war between them ends.
The essence of Ukrainian problems
All problems, including the fall of the hryvnia, it was decided to blame on the war in the Donbass. However, for several months now, at least nominally a truce has been operating, and the hryvnia has reached its next peak of decline. And an improvement is not expected.
Obviously, they tried to attribute the inability to solve economic problems to the war. And the unwillingness to compromise with the Donbass gives rise to new and aggravates the old (including economic) problems of Ukraine.
conclusions
The war of the oligarchs destroys the country. But the worst thing is that the war in the south-east of Ukraine leads to huge human losses. It is impossible to solve economic issues on a purely economic plane and not touch on the political component. It is she who plays a decisive role in Ukraine today. The future fate of the country depends on the settlement of the situation in the southeast.