NBU explains restrictions on transactions with foreign currency government bonds - companies circumvented currency restrictions

The National Bank of Ukraine explained the initiative to restrict transactions with foreign currency government bonds.

The regulator's press service informed Ukrainian News Agency about this.

Currently, residents carry out transactions to purchase domestic government bonds denominated in foreign currency for hryvnia with the help of non-bank investment firms (without involving banks).

The regulator of such transactions is the National Commission for Securities and Stock Market.

These transactions are carried out with the aim of purchasing foreign currency to circumvent the restrictions established by the NBU.

The essence of the transactions is as follows: instead of selling foreign currency proceeds on the foreign exchange market of Ukraine, exporters invest them in foreign currency government bonds.

Bonds are purchased from banks for foreign currency and subsequently sold for hryvnia through non-bank investment firms to other companies and individuals (at a rate higher than the rate on the interbank foreign exchange market).

Companies that purchase government bonds receive foreign currency upon their redemption.

Given the current restrictions and the lack of currency contracts, these companies are unable to purchase foreign currency on the foreign exchange market of Ukraine.

And although during the above operations, currency is not withdrawn from Ukraine, this reduces the supply of foreign currency on the foreign exchange market of Ukraine (due to the avoidance of the sale of export proceeds) and increases pressure on the country's international reserves.

Given the need to close such transactions, the NBU has repeatedly addressed the Securities Commission with proposals to make such transactions impossible.

The issue of taking measures by the Securities Commission to ensure the effectiveness of capital movement control measures, including by harmonizing regulation and coordinating capital movement restrictions for securities transactions with those applied to banking operations, was included in the Memorandum on Economic and Financial Policy with the IMF starting in December 2023.

As Ukrainian News Agency earlier reported, banks cannot conduct transactions to purchase domestic government bonds denominated in foreign currency for hryvnia from March 21, 2022, in accordance with the restriction stipulated by NBU Resolution No. 18 of February 24, 2022 (as amended): “The central counterparty and banks have the right to make cash settlements for transactions regarding domestic government bonds exclusively in the currency of the nominal value of the domestic government bonds.”

The National Commission for Securities and Stock Market announced that it will limit traders’ transactions with foreign currency domestic government bonds from June 30 of this year.

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