The currencies of Ukraine and Russia, former Soviet republics in a state of undeclared war over territories of Crimea and Donbas, have simultaneously hit all-time lows on Dec. 13.
The hryvnia’s
interbank rate fell to 15.9 against the U.S. dollar as of 3:30 p.m., which is
almost a 50 percent devaluation since the beginning of the year. On the offer
side, the hryvnia was reaching 19.5 against the American currency at some point.
Trade volume exceeded $65 million.
Meanwhile,
the official rate set by the National Bank stands at 15.77. The hryvnia has never
been officially lower.
In an
attempt to calm down the panic, the regulator sold $3 million on the market at
a rate of Hr 15.76.
As of
now, Cabinet is preparing the state budget for the next year with a currency rate forecast
at Hr 22 per dollar, reports Ukrayinska Pravda, a news and opinion website. However, Prime Minister Arseniy Yatsenyuk during the Dec. 16 news briefing said the forecasted rate for 2015 is Hr 17 per dollar.
Demand
for foreign currency grows as population feels little confidence in the hryvnia,
preferring to use dollars or euros for keeping their savings. This pushes the
banks to compete for hard currency on the interbank market, in order to be able
to satisfy their clients.
Andriy
Pyshny, a head of state-owned Oshchadbank, nation’s third biggest commercial
bank, believes devaluation is also a matter of speculations as currency black market blossoms.
Ukraine’s
newly appointed Economy Minister Aivaras Abromavicius during the Dec. 13 interview
with the Kyiv Post said the drop
of the hryvnia price is linked to devaluation of the Russian ruble and Kazakhstani
tenge.
“I
guess they’re dependent a lot,” he emphasized. “We are always
optimistic that things will settle down eventually.”
Meanwhile, the Russian ruble passed the threshold of 80 against the dollar, plummeting 55
percent this year and becoming world’s worst performing currency – however, after
the bitcoin, a crypto-currency that is popular with drug and arms dealers and
that Fed Reserve’s former head Ben
Bernanke had trust in at some point.
The ruble
plunged by 19 percent on Dec. 16 alone after Russia’s Central Bank during the emergency
meeting on the same day at 1 a.m., Moscow time, sharply
raised its key rate to 17 percent, up from 10.5 percent, to provide an
incentive for the investors to keep their money in the ruble assets.
Drop in
oil price, from $116 a barrel in June to as little as $59, hits Russian
energy-dependent economy very hard, decreasing the flows of hard currency into
the Kremlin-led country. Economic sanctions introduced by the Western
democracies to calm down Russian leader Vladimir Putin’s aggression add to
this.
Some recall
Malaysia’s
1997 devaluation that was stopped by market-based policy and cuts in
government spending.
Boris
Nemtsov, a political opponent to Putin and country’s energy minister in 1997,
compares the current situation with Russia’s default in 1998. However, this
time, he thinks, it will be a series of corporate defaults, not default of the government.
“In 1998, there was a huge state debt, both internal and external, which is why it ended up with Russia’s default, government’s inability to pay its debts,” he wrote on Facebook. “In 2014, the debt is huge too, more than $700 billion, but this is mostly debt of the banks, more than $200 billion, and corporations – $450 billion. Government’s debt is $57 billion, relatively small and won’t lead to the default.”
Meanwhile,
Slava Rabinovich, head of Moscow branch of Diamond Age Capital Advisors, an
investment company, suspects Russian Central Bank of printing huge amount of
rubles secretly that leads to its large-scale depreciation.
“If they’ve conducted a giant ruble emission (and it looks like it), then it’s been conducted surpassing the laws of the Russian Federation, it’s obvious. And it happened secretly,” Rabinovich wrote. “This helped to drop the ruble even more.”
“If a substantial amount of this money has been transferred out of the country through the foreign exchange market, then it’s a giant-scale money laundering, which is an international financial crime. International banks might have participated in this… Prison sentences in the U.S. are guaranteed.”
Editor’s Note: The story has been updated to include Prime Minister Arseniy Yatsenyuk’s comment on the hryvnia rate forecast for the 2015 state budget.
Kyiv Post associate business editor Ivan Verstyuk can
be reached at [email protected].
