Archive for June 8th, 2013

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Limits on cash transactions from 1st September 2013

June 8, 2013

Way back on 21st January this year, I wrote about proposals from the National Bank of Ukraine (NBU) to place a limit on cash transactions within the Ukrainian economy.

Currently only 11% of transactions in Ukraine are not made in cash according to the NBU – Ergo 89% of all transactions in Ukraine are cash transactions.  For example, whether it be $40,000 for a new car or $2,000,000 for a very nice home by the sea, such transactions almost always occur in cash.

With effect from 1st September, it seems that is now about to stop – or at least reduce dramatically – owing to the NBU putting an official cap of UAH 150,000 (about $18,750) on cash transactions.

Whilst this will undoubtedly be promoted as a way to move some of the economy from the black/grey into the light – and it will have some benefits in this direction – one can also speculate that this has much more to do with reducing the need to continually buy US Dollars, Euro etc to facilitate people withdrawing large sums to buy cars, apartments and homes etc., when all the time the foreign currency reserves held by Ukraine are on a continual downward trend.

Quite simply there is less need to buy the paper currency from the markets when larger transactions will now have to be accomplished by transferring numbers electronically internally for domestic transactions.  Over the course of a year, one has to suspect going to the markets and buying $ billions in physically held cash to facilitate domestic transactions is a fairly costly exercise.

Thus one is left to ponder if the lightening of a black/grey cash economy is the real driver for this decision and a substantial saving on buying foreign currency is a fortunate by-product of this move for the NBU and Ukrainian banking system – or vice versa.

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