You're reading: Central bank: Hryvna was under attack

Ukraine’s battered national currency is drooping – yet again.

Since the beginning of October, street rates for the hryvna have fallen some 5 percent against major Western currencies. In some exchanges on the street on Oct. 26, the hryvna was selling at Hr 4.70 to the dollar – well outside the National Bank of Ukraine’s official upper limit of Hr 4.60 to the dollar.

Like much else in Ukraine, officially, the situation is better. Since the beginning of October, the NBU left the official rate at which it sells dollars to banks for hryvnas practically unchanged. By Oct. 26, it was up slightly at Hr 4.4842 to the dollar, versus Hr 4.47 to the dollar at the beginning of the month.

NBU governor Viktor Yushchenko conceded Oct. 21 the hyrvna has been under real pressure.

‘Russian and Latvian banks prepared an attack on the Ukrainian hryvna,’ he said at a press conference. ‘It could have been even more serious than the fuel crisis in July-August 1999.’

Yushchenko told reporters strong monetary policy and deep NBU pockets have allowed the NBU to defend the hryvna successfully. He declined to identify the foreign banks by name, but said they had been dumping the hryvna on markets in Riga, Moscow, and Tallin, because of fears of a hryvna devaluation in the wake of the upcoming presidential elections.

Some money market analysts here believe Yushchenko’s boss, President Leonid Kuchma, has ordered the hryvna propped up to help convince voters the present administration is good at keeping the economy stable.

Yuschenko admitted the NBU has of late spent a lot of dollars to keep the hryvna strong, but denied the motivation was political.

The NBU counted its total foreign reserves at $1.5 billion at the end of September, he said. As of Oct. 19 reserves had fallen to $1.36 billion.

Yuschenko said continued ‘strict monetary policy’ – which in Ukraine usually means increased foreign currency trading restrictions on commercial banks – would keep the hyrvna sound.

Indeed, recently the NBU, like Ukraine’s businessmen, has been doing its level best to lay its hands on as many dollars as possible.

Since March the NBU added $697 million to its reserves from interbank market purchases, he said.

‘The NBU has not been selling currency … but buying it,’ Yuschenko said. ‘That is, we do not uphold the hryvna rate artificially.’

But on Oct. 23, the NBU conceded the short-term drain on its reserves was too much, upping the interbank exchange rate to 4.68 to the dollar. This year’s announced trading band is 3.6 to 4.6 to the dollar.

The hryvna traded at about Hr 2 to the dollar through August 1998; after which the emerging markets financial bubble burst. By the end of the year it sold at Hr 3.5 to the dollar.

The NBU’s latest concession to reality may still fail to relieve the pressure. The interbank trading rate currently is 4.7 to the dollar. Outside the capital street rates hover between 4.8 and 4.9, Interfax reported.

A sure sign of the market’s belief in an overvalued hryvna is also in evidence in Kyiv exchange booths. Using techniques honed over a near decade of world-class monetary instability, Ukrainian traders forbidden by the NBU to sell dollars at a real market rate are retaliating by ordering tellers to not buy hryvnas.

The technique, quite illegal but ignored by law enforcers, is the classic Ukrainian storm warning of impending hryvna devaluation: no dollars available in the booths that purport to sell them.

‘No dollars, sorry,’ declared a woman manning an exchange point in the Kashtan store on Lesy Ukrainky street Oct. 22. Past shrugging, she declined to change her statement after accepting $100 dollars, cash, to sell exactly Hr 466 to a subsequent customer.

Since the beginning of 1999 Yuschenko has repeatedly pledged the hryvna will stay within its present trading corridor. ‘At least until Oct. 31,’ he said on Oct. 21.