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Currency racketeering

January 21, 2015

Last week, the Governor of the National Bank of Ukraine, Valeriya Gontareva, told the RADA in a statement, that the NBU simply doesn’t have the foreign currency reserves to meet the demand of the nation’s citizenry – by orders of magnitude.

This despite numerous administrative measures undertaken by the NBU over the last year restricting access to, and limiting daily withdrawals in foreign currency.  It follows therefore, that such policies have led to a more visible black market in currency exchange (though it has always existed).  As Ms Gontareva rightly states however, “A black currency market will exist until the removal of restrictions on the market.

It appears now, that the NBU is to (either temporarily or permanently) remove the currency trading licenses from the money trading kiosks to be found everywhere in Ukraine.  Whether or not this will somehow significantly ease demand for foreign currency or assist the NBU and the traditional banks throughout Ukraine when it comes to controlling foreign currency and its subsequent exchange is difficult to fathom.  However what these licensed currency exchanges are not, is genuinely “black market”, as they are licensed, and therefore legitimate.

To be perfectly blunt, there is little chance of buying US$ or Euro with Hryvnia at many of these kiosks these days anyway.  Converting US$/Euro to Hryvnia is all that many will offer to do.

At many of the traditional high street banks, unless you are a customer of the bank, they will also refuse to exchange Hryvnia for foreign currency.  At some banks chains they will only do so at the branch where your account was opened, rather than at any branch of the bank.

There is then the matter of the personal daily cash limit, which is currently about Euro 800 or US$ 930.

If, for example, the traditional high street bank is offering to buy US$ 1 at UAH 16.50 or sell US$1 at 16.95, then the licensed kiosks will be buying US 1 at UAH 17.25 and selling at US1 at UAH 18.00.

The genuine black market money exchanges, such as those to be found at  7KM market or Kniga in Odessa, to name but two, are (as of two days ago) buying US$ 1 at UAH 19.3 and selling US$ 1 for UAH 20.5. – A clear UAH 3.00 greater than the traditional banks, and UAH 2.00 greater than the exchange kiosks, whether buying or selling the US$.

Quite simply, the black market traders can afford to buy US$ at far above the traditional bank or kiosk rates because they are selling the US$ at much greater rates – and the demand to buy the US$ at remarkable rates is robustly present, whether that demand be a desire to convert Hryvnia to a more stable currency and put it under the mattress, or for any other purchasing/payment reasons.

Now some may speculate, if they be of a cynical nature, that some traditional bank branches and local currency exchange kiosks, that consistently state they have no foreign currency to sell, may well be colluding with/supplying some of the black market currency traders with foreign currency to sell at significantly greater margins.  That said, some of the black market currency traders would not need such funding assistance.

Whatever the case, quite how suspending or removing the licenses for the currency exchange rate kiosks will assist with controlling the black market exchanges, or help the NBU manage foreign currency, remains unclear.  What such a move will do is force the Ukrainian public to use only the traditional banks to exchange currency legally – good news for the bank owners – or force the Ukrainian public to the black market currency traders, and thus expand that black market.

Thus we may ponder whether the move to delegitimise currently legitimate currency exchange kiosks is a counterproductive attempt to deal with the currency black market, or an opportune moment to rid the nation of these enterprises to the benefit of the traditional banks under the guise of foreign currency control or combating the black market.

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