Demand for cash currency increased significantly in 2024 - NBU explains reasons

The National Bank of Ukraine (NBU) explained the reasons for the significant increase in demand for cash currency.

This is stated in the materials of the NBU, Ukrainian News Agency reports.

Last year, demand for cash currency increased significantly.

This is due to important changes at the end of 2023. Then the NBU lifted restrictions on the sale of cash currency by banks. If earlier banks could sell a limited amount of cash currency, then from December 2023 the NBU lifted any limits.

The NBU did this to minimize the difference between the official rate and the rate on the cash market. For more than a year now, it has been close to 1%, while, for example, in 2023 it reached 10%, and in 2022 - 25%.

Also, as the regulator explains, this made it possible to strengthen the connection between the cash and interbank segments of the market. The cash market no longer lives a separate life, and fluctuations in the cash rate are not as significant as before.

All this was important for the regime of managed exchange rate flexibility to work effectively.

This led to its redistribution. Before the lifting of the limit on trading in cash currency, demand for it was satisfied through other channels:

▪️both official - the purchase of non-cash currency by the population (in 2024 its volumes decreased by 18%);

▪️and unofficial (card tourism and other schemes to circumvent restrictions).

"In 2024, we saw real demand for cash currency. And if the NBU had not lifted restrictions on its sale, the demand that we saw last year would still put pressure on reserves, but through other channels. Is all the demand for cash currency generated by the population buying currency for savings? No," the NBU reported.

Part of the demand is generated by volunteers who purchase equipment, medical supplies, and other goods needed for the front abroad. Demand for cash currency is also generated by small agricultural enterprises, small businesses, etc.

Of course, a share of this demand falls on the population. However, in wartime conditions, people's desire to diversify their financial risks is quite understandable.

The NBU's measures make it possible to limit the potential demand for currency. Currently, more than UAH 310 billion are stored in hryvnia-denominated term deposits and government bonds.

On the other hand, if there was a loss of confidence in the hryvnia, then with a high probability these funds would end up on the foreign exchange market following the money from current accounts.

As Ukrainian News Agency earlier reported, in 2024, the population bought USD 11,054.4 million more than it sold.

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