21 May 2022, Saturday, 12:44 798

NBU Explains Why It Lifted Restrictions On Cash Currency

Редактор: Roman Vaniyan

The National Bank explained why it has removed restrictions on cash.

The NBU has said this in a statement, Ukrainian News Agency reports.

The National Bank emphasizes that the official hryvnia exchange rate against the US dollar remains fixed at 29.25 UAH/USD. Fixing the exchange rate makes it possible to contain inflationary processes (due to cheaper critical imports) and to control inflationary expectations.

Restrictions on setting the exchange rate by banks in the non-cash segment of the foreign exchange market also remain unchanged. Banks continue to conduct transactions for the purchase and sale of non-cash currency with customers at a rate that is in the range where the lower limit is the official rate, and the upper limit is the official rate + 1%.

Important is the fact that most transactions in the foreign exchange market are carried out in the non-cash segment, where, in particular, exporters and importers sell and buy non-cash currency. Thus, importers can buy currency at a rate that is close to the rate of selling currency by exporters. In the event of a shortage of currency in the market, the NBU closes it by selling foreign currency from international reserves.

The second segment of the foreign exchange market is cash.

The cash market during martial law operates in a limited mode. Banks can sell foreign currency through cash desks only in the amount in which they bought it from the population. Before the war, there was almost free flow of cash between the cash and non-cash segments of the market, plus the population could freely buy currency from banks. At present, the NBU currency restrictions put a "curtain" on such overflows and the volume of sales of cash by banks.

However, it should be kept in mind that now in the cash market they mainly buy foreign currency for speculative earnings, financing "gray" imports that are not critical, as well as transferring savings into foreign currency. None of these areas is a critical priority for supporting the economy during the war. Therefore, the National Bank does not spend deficit international reserves to smooth out fluctuations in this market segment.

From May 21, 2022, the NBU allowed banks not to limit their rates for the sale of cash currency. This equalizes the conditions for banks in comparison with exchangers, which helps to increase the efficiency of the cash market and reduce exchange rate fluctuations in it.

From May 21, 2022, the National Bank of Ukraine also lifted restrictions on setting the rate at which banks debit funds in hryvnia from customer accounts if customers use hryvnia cards abroad or withdraw cash from cards.

Thus, the NBU creates opportunities for convergence of the currency conversion rate for those temporarily abroad and the cash purchase rate for citizens staying in Ukraine.

It also minimizes "card tourism". According to available data, a significant part of operations with hryvnia cards abroad are cash withdrawals from ATMs. A significant part of this cash then returns to Ukraine and ends up on the illegal cash market. That is, de facto scarce foreign exchange resources can be spent on non-priority wartime needs, which is now extremely important to minimize.

Therefore, equalization of the conditions for direct (through cash transactions) and indirect (through card transactions) purchases of currency, in Ukraine and abroad, by the population is a measure that will prevent the unproductive withdrawal of capital and protect Ukraine's international reserves.

As Ukrainian News Agency earlier reported, from May 21, the National Bank lifted restrictions on setting the rate at which authorized institutions can sell foreign currency in cash to customers.

The National Bank temporarily reduced the monthly limit on cash withdrawals abroad from hryvnia accounts opened in Ukrainian banks twice to UAH 50,000 equivalent (from UAH 100,000).