Kyrylo Shevchenko: How Ukraine kept its financial front. The story of Resolution No. 18

On today's anniversary, I looked over the documents and remembered February 24, 2022. Resolution No. 18 caught my eye - the document due to which the Ukrainian financial system lives and maintains stability and efficiency to this day. With this post, I would like to thank all involved colleagues from the NBU team who took part in the development of this literally historical document and to mention what the first day of the war was like for the National Bank.

The full-scale invasion of Ukraine by the aggressor country, which began a year ago, has been a terrible ordeal for our people and our financial system. We have not experienced such shocks in our modern history, but that does not mean that we have not prepared for them.

The National Bank must be always ready for anything. This is the only way to minimize the impact of the war on professional financial market participants and ordinary people. Therefore, in order to be able to take prompt action if necessary, the NBU has worked out various scenarios of the development of the situation on the political and military fronts. A number of risks were taken into account.

As a result, we were able to ensure the uninterrupted operation of the National Bank's System of Electronic Payment (SEP), supply the banking system with hryvnia banknotes, control the work of banks and non-banking financial institutions, and ensure the stability of the financial market.

The night of the 24th of February is forever engraved in my memory. It was about 5 a.m. when I left the President Volodymyr Zelensky's office and drove to the National Bank, where our entire team had already gathered. The entire Board of Directors of the National Bank and the key specialists were there.

The atmosphere of the meeting was professional and very constructive. There was no exchange of news, predictions and worries, as might be expected in such a situation. Everyone understood that a full-scale war had broken out, and that the country was going through a tremendous shock. And that’s, among other things, what we do here, and now will determine how Ukraine comes out of this turmoil. So, we had a dry and professional discussion regarding the measures that should be taken to maintain the capacity of the system. Everyone was reserved, focused and, I would say, strangely detached. Detached from everything except the work.

Separately, I would like to pay my respect to the members of the NBU team who went through 2014 with the National Bank - the year of the annexation of Crimea and Russia's invasion of Donbass, which was the prelude to the full-scale war in 2022. Many of the new decisions taken by the National Bank were based on the experience of 2014, which proved to be extremely useful.

This is the background of the later famous Decision No. 18, which was ready at 9 a.m. on February 24, 2022, and which contained the most important measures for stabilizing the system in the face of force majeure unprecedented in recent history. I will not list all the points contained in this document, but I will highlight the most important ones:

• The official hryvnia-US dollar exchange rate was fixed at the pre-invasion level of 29.25 UAH/USD. It was subsequently adjusted to 36.6 UAH/USD in July. Interbank currency transactions were temporarily suspended (except for dollar sales by our exporters). This prevented panic-driven influence on the stability of the national currency. It was then possible to acquire non-cash foreign currency from the National Bank to pay for critical imports, the list of which was approved by the Cabinet of Ministers of Ukraine. Initially, the list was not very long, but later it included all major groups of goods.
• In order to prevent large outflows of liquidity from the banking system, we had to restrict the public from withdrawing money from their accounts. These would have been mainly emotional outflows. Therefore, we have decided to allow a large withdrawal limit of UAH 100.000 per day from a hryvnia account, which was certainly enough not only for one person but for a family. We have made exceptions for accounts used to pay wages and social benefits, where there were no limits. For foreign currency accounts, the daily cash withdrawal limit was initially set at the equivalent of UAH 30.000 and then raised to UAH 100.000.
• Clear instructions were given to the banks to ensure that ATMs were constantly replenished so that people could withdraw cash even when their branches were closed. Not always and not in all regions were bank branches operating safely, and we took this into account. The safety of bank staff and their customers was of paramount importance.
• What was not restricted, either at the beginning of the full-scale invasion or later, was cashless payment. People have always been able to use them freely.
• The NBU offered banks its blank (unsecured) refinancing for one year, with an option to extend for additional year, and with no limit on the amount. An emergency measure, but an important one in difficult times. It was used at the height of the coronavirus pandemic, and was triggered immediately after a major attack.
• Immediately, all spending operations on the accounts of the aggressor country were ceased, which I do not think needs to be explained. On February 25, the regulator revoked the licenses of two banks with Russian state capital – Prominvestbank (owned by Russia's Vnesheconombank) and the International Reserve Bank (owned by Sberbank).

These were the initial emergency measures, which have been adjusted as the situation in the country was changing. Further restrictions needed to be imposed. Forced ones. They were also aimed at protecting the NBU's foreign exchange reserves. For example, when some resourceful citizens invented the system of withdrawing foreign currency, known as "card tourism", the regulator had to fight against dollars leaving the country. International partners supported Ukraine, we worked hard with them, proving every day that we are reliable partners. And the National Bank has been doing its best to prevent the systematic withdrawal of incoming foreign currency into its reserves.

The first financial assistance to the defending country, I believe, can be called the first steps of the National Bank. One year on, I can confirm that they have been effective. Thanks to them, we managed to prevent panic devaluation of the hryvnia and outflow of funds from accounts by maintaining high liquidity and smooth operation of the banking system. What is very important to note is that in 2022 the war-torn Ukraine was able to maintain a better inflation rate than initially forecast - 26.6% instead of 34%.

From the very first days of the large-scale invasion, the NBU team worked coherently and efficiently to defend our financial front. We definitely owe this to the Armed Forces of Ukraine and to the support of the Ukrainian people.

Kyrylo Shevchenko, Head of the National Bank of Ukraine in 2020-2022