As explained by «FACTS» expert Daniil Monin, the National Bank of Ukraine (NBU) is currently using its foreign currency reserves to maintain the hryvnia exchange rate within the range of 41 to 41.5 UAH per US dollar. This decision has sparked some debate and raised questions about the effectiveness of such a policy. In this article, we will take a closer look at the NBU’s actions and their potential impact on the Ukrainian economy.
Firstly, it is important to understand the reasons behind the NBU’s decision to intervene in the foreign exchange market. The hryvnia’s exchange rate is determined by the market forces of supply and demand. When there is an excess demand for dollars, the hryvnia weakens, and when there is an excess supply, it strengthens. In recent years, the hryvnia has faced significant pressure due to various factors such as the global economic downturn, political instability, and the COVID-19 pandemic. This has led to a sharp depreciation of the currency, which has caused concerns for both businesses and the general public.
To address this issue, the NBU has been using its foreign currency reserves to purchase dollars and thus increase the supply of dollars in the market. By doing so, the NBU is attempting to stabilize the hryvnia’s exchange rate and prevent it from weakening too much. This is important for a number of reasons. Firstly, a stable exchange rate reduces uncertainty and promotes confidence in the economy, which is crucial for attracting foreign investment. Secondly, a weaker hryvnia can lead to higher inflation, making imports more expensive and reducing the purchasing power of Ukrainian citizens.
However, some critics argue that the NBU’s intervention in the foreign exchange market is not sustainable in the long run. They argue that the NBU’s foreign currency reserves are limited and that using them to support the exchange rate is not a sustainable solution. Moreover, there are concerns that the NBU’s actions may lead to a shortage of dollars in the market, which could negatively affect businesses that need to import goods and services.
In response to these concerns, Mr. Monin explains that the NBU is not trying to permanently fix the exchange rate at a certain level. Instead, it is aiming to keep it within a reasonable range. This approach allows for some flexibility in the exchange rate and prevents the NBU from depleting its foreign currency reserves too quickly. Additionally, the NBU is constantly monitoring the situation and is ready to adjust its policies if needed.
It is also worth noting that the NBU’s intervention in the foreign exchange market is not an isolated action. The central bank has also implemented a number of other measures to support the hryvnia, such as raising interest rates and providing liquidity to the banking sector. These actions have helped to stabilize the currency and reduce its volatility, which is important for maintaining macroeconomic stability.
Despite some concerns, it is important to acknowledge that the NBU’s actions have had a positive impact on the Ukrainian economy. The hryvnia has remained relatively stable, inflation has been kept under control, and the country’s foreign exchange reserves have increased. This has helped to build confidence in the economy and attract foreign investment, which is crucial for sustainable economic growth.
In conclusion, the NBU’s decision to use its foreign currency reserves to maintain the hryvnia exchange rate within a certain range is a necessary and effective measure. It helps to promote stability and confidence in the Ukrainian economy, which is crucial for its long-term development. While there may be some concerns about the sustainability of this approach, the NBU is closely monitoring the situation and is ready to adjust its policies if needed. As a result, we can be optimistic about the future of the hryvnia and the Ukrainian economy as a whole.
