In mid-August, the National Bank of Ukraine announced tighter rules for companies engaged in international trade, forcing them to use a single bank to settle the foreign currency denominated payments. It will also require proof of sales in Ukraine from companies buying foreign denominations to purchase products abroad for re-sale at home. Experts note this will dampen demand for foreign coin in Ukraine, and is the latest move aimed at protecting the state’s falling dollar reserves.
“Authorities are using every possible measure or tool at hand to construct tight safeguards against the pressure on the local currency that has plagued it nearly since last fall,” investment bank ICU wrote in a note to investors. “On the eve of the elections, credibility of the pegged FX regime is wearing thinner and thinner, and is in fact nearly worn out.”
Debate over possible hryvnia devaluation started almost a year ago, when the NBU’s foreign currency reserves began dropping from their August high of $38.2 billion, compared to $30.1 billion in July 2012.
A $2 billion Eurobond placement in July alleviated the pressure, albeit at a cost of 9.25 percent, the highest in 12 years. A $450 million loan from the World Bank, that ministry of finance officials say is in the works, will no doubt help.