Publication: Monitor Volume: 6 Issue: 8

The National Bank of Ukraine (NBU) has generally succeeded in keeping fluctuations of the Ukrainian hryvnya within the targeted currency’s “corridor” of US$1 = 3.5-4.6 hryvnya during 1999. For most of the year the hryvnya stayed within the corridor without the NBU having to intervene on the foreign exchange market to support the exchange rate. The hryvnya slipped, however, at the beginning of December, leading the NBU to introduce fresh controls on the foreign exchange market.

The corridor came under attack in August 1999 when increased demand for foreign currency due to gasoline shortages sent the hryvnya below the corridor’s lower band. The demand for hard currency at that time was so strong that in some street exchange kiosks the dollar cost more than five hryvnya. Following massive NBU intervention, matters stabilized in a few days. However, this situation repeated itself in early December, when Russia announced a temporary suspension of exports of oil and electricity deliveries to Ukraine in response to the unpaid pilfering of Russian gas in transit through Ukraine. The speculative attack which followed pushed the hryvnya down to US$1 = 5.25 on December 23.

The NBU blamed “bank speculators” for this market volatility, and announced that a new set of currency controls would be introduced on December 28. Among other things, trading on the interbank foreign exchange market will be limited to one trading session per day. All transactions during the session will become fully transparent with bidders and sellers announcing planned transactions ahead of the session. They will not be permitted to alter their plans during trading. Whether this will restore confidence in Ukraine’s currency remains to be seen.

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