NBU Pledges Liberalism

The National Bank of Ukraine has lifted its 5% limitation introduced in the fall of 2001 on the exchange rate spread between the buy and sell prices for street currency exchanges. According to NBU Governor Serhiy Tyhypko, the National Bank will monitor the situation on the foreign exchange market and take the required steps in the event of its destabilization.

Another statement released by Mr. Tyhypko concerns commercial banks. From now on, they are allowed to buy foreign currency and precious metals on the interbank foreign exchange market for hryvnias with no commitments as well as buy precious metals on the international market with their own foreign currency or that bought on the interbank market for hryvnias. Formerly, banks could buy currency only in return for certain commitments.

A major limitation on Ukraine’s foreign exchange market is the obligation binding on exporters to sell within five days 50% of their foreign currency revenue. To quote Mr. Tyhypko, this will not be changed in the immediate future: “We have concluded that under the conditions of a downturn in the world economy and with a looming war against Iraq, such a step would make no sense.” According to him, the NBU will effect a gradual liberalization of the foreign exchange market but is not going to lift this requirement in the near future. In addition, the NBU governor does not believe that this issue could significantly affect the liberalization of the foreign exchange market. As he put it, the Iraq crisis can negatively affect the world economy. A protracted Gulf conflict would send world oil prices surging and thus slow economic growth. If the conflict is over quickly, such consequences could be avoided, he believes. Commenting on a recent statement by the Russian Premier Kasyanov to the effect that the Russian Federation is not going to stop the development of its relationship with Ukraine in creating a free trade zone and envisions a single economic environment with uniform taxes, customs tariffs, and currency, Mr. Tyhypko said that such a move “calls for serious decisions above all at the legislative level.” He further stated that if such decisions are made, “it will be extremely difficult to push them through the parliament.”