The devaluation of the hryvnia in 2014: implications for the economy

The fall of the hryvnia began in 2014 - the active phase of the Maidan. However, experts say that all the prerequisites for the fall of this currency were from the beginning of 2013 due to the extremely weak state of the economy, which has not recovered since the crisis of 2008-2009. Therefore, the rate was maintained artificially by selling currency from the reserves of the Central Bank of Ukraine.

The devaluation of the hryvnia. What it is?

Devaluation is the process by which the price of a national currency falls against foreign currencies, that is, a monetary unit depreciates.

In other words, the devaluation of the Ukrainian hryvnia is the reduction of its rate in relation to foreign currencies.

Devaluation can be open and hidden. With open devaluation, the Central Bank announces this, and the cash-discounted funds are subject to exchange or withdrawal. With a hidden state, the value of the national currency is reduced. Money is not exchanged and not withdrawn.

Effects

The results of devaluation can be positive and negative.

Among the positive are:

• Increase in demand within the country;
• A decrease in the expenditure of gold and foreign exchange reserves;
• An incentive for exports.

However, the negative consequences are very significant. In the event of a devaluation, the following occurs:

• Inflation is provoked;
• The trust of citizens towards the national currency comes to naught;
• Due to the increase in prices, imports of products are declining;
• People tend to withdraw all their money from bank accounts;
• Purchasing activity is decreasing due to a decrease in salaries and pensions.

Ukraine. The devaluation of the hryvnia

In February 2014, there was a devaluation of twenty-five percent. Instead of eight hryvnia for one dollar now it was necessary to give ten. And in May, despite the fact that the reserves of the Central Bank decreased by six billion, the devaluation of the hryvnia was fifty percent.

At the same time, Ukraine received the first tranche of seventeen billion dollars. Due to this, the devaluation of the hryvnia stopped. Nevertheless, the situation continued to deteriorate. The Crimea was annexed to Russia, civil war continued in the Donbas, and enterprises located in the territories that proclaimed themselves Donetsk People's Republic and Lugansk People's Republic stopped paying taxes to Kiev.

So, in August there was another devaluation of the hryvnia in 2014. The rate fell from twelve hryvnia to dollar to fourteen and a half. Thanks to the actions of the Central Bank, the ratio eased somewhat, and before the election due to the gold and currency fund of Ukraine, the rate was fixed at a rate of twelve hryvnias and ninety five kopecks for one US dollar. However, after the elections, the support of the Ukrainian hryvnia ended, the course hesitated again.

Over a week, the dollar rose to sixteen with a small hryvnia, and the devaluation of the hryvnia in Ukraine (2014, the end of the year) was one hundred percent.

International Monetary Fund

The main reason for the deterioration of the economic situation is the acceptance of all the requirements of the International Currency Ford. Seeking to receive IMF loans, Kiev went on a free exchange rate, increased gas tariffs for residents and other public utilities, which caused panic among the population. People stopped trusting their state, took money from deposit accounts and bought the currency in bulk.

Economic crises in Ukraine have happened before. In the late nineties the country was influenced by the Russian crisis, and in 2008 - by the world crisis. In those years, the devaluation of the hryvnia also took place. However, the state did not abandon the currency corridor, as it was done in 2014.

Such a measure could be successful only in a state with a strong economy and a national currency secured by gold or goods. In the case of Ukraine, the economy was not characterized by reliability and stability. Experts have repeatedly expressed their opinion that the hryvnia issue without the control of the National Bank will cause the flow of capital - for the hryvnia will try to acquire foreign currency.

The release of the hryvnia. Effects

So it happened. Money was withdrawn from deposit accounts, and the Central Bank at that time gave other banks the means to maintain liquidity. Exchange rate began to lead speculators.

In August, the National Bank bought state bonds Naftogaz Ukraine for a hundred billion hryvnia. The money was transferred to foreign currency, which also contributed to a new price jump. Thus, the Central Bank, not having mechanisms of confrontation, itself helped to grow the rate.

In addition, enterprises exporting products tried to keep the received foreign currency as long as possible, speculating on the course. As a result, foreign exchange earnings declined.

Businessmen tried to conduct transactions on settlements outside of Ukraine, using various schemes, so that local banks could not affect capital. And they did not seek to import money received from settlements.

At the same time, investment has fallen dramatically. Investors aspired by all truths and crooks to take out their capital from an unpredictable and alarming zone, where the risks of investing money were enormous. According to state statistics, since the beginning of the year Ukraine has lost eleven hundred fourteen hundred billion dollars of direct investment, which amounted to about twenty percent of the total amount of investment infusions.

Anti-crisis measures

All experts unanimously declare that the devaluation of the hryvnia for the most part was due to the release of the hryvnia and the rejection of a fixed rate. And that the first step to stabilizing the currency will be a rejection of the floating rate and a return to a fixed rate.

As a general anti-crisis measures, it was suggested to pursue a stricter policy aimed at minimizing speculative operations, increasing exports of products, especially the agricultural sector. There were also proposals to abolish foreign exchange auctions and raise the discount rate to the predicted inflation.

Some Ukrainian experts believe that the National Bank has all the necessary funds to overcome the currency crisis, but for some reason does not use them. But whatever was done by the National Bank, in early 2015, the hryvnia crash worsened, the rate reached UAH 30 per dollar.

The consequences of the devaluation of the hryvnia in 2014

Economic analyst Alexander Okhrimenko states that during the crisis period, the average salary is about one hundred dollars, and may be reduced to fifty. Only the most active can survive in the current conditions. The rest will become beggars.

The cost of loans in the currency increases, they are paid poorly or do not pay at all. This is the result of such an unpleasant phenomenon for the economy, as the devaluation of the hryvnia. In 2014 the banks made a fresh decision - they began to form the so-called short positions, when the currency was sold more than bought. By the end of 2014, short positions amounted to six billion dollars. But as a result, now banks can not buy dollars for thirty hryvnia and incur huge losses.

To stabilize the situation, Okhrimenko proposes to pursue a transparent policy of refinancing banks; Issue for all currency treasury obligations, and for the money earned increase the gold and foreign exchange reserves; To release deposits from taxes and increase their rates, as well as to abolish the restrictions of the Central Bank in the foreign exchange market.

It is assumed that Ukraine will be able to return to the level of 2013 in about 5-7 years. And constructive changes will become possible only after solving problems in the east of the country.

Investors in Ukraine are mainly its oligarchs. They are fighting for power and property. Therefore, investments from the outside can only come after the end of the wars between them.

The essence of Ukrainian problems

All problems, including the fall of the hryvnia, it was decided to write off for the war in the Donbass. However, for several months now even a nominal armistice has been acting, and the hryvnia has reached its next peak in the fall. And the improvement of the situation is not expected.

Obviously, the inability to solve economic problems tried to write off for the war. And the unwillingness to compromise with the Donbas generates new ones and exacerbates the old (including economic) problems of Ukraine.

conclusions

The war of the oligarchs is ruining the country. But the most terrible thing is that the war in the southeast of Ukraine leads to huge human losses. It is impossible to solve economic issues on a purely economic plane and not to touch the political component at the same time. It is she who plays a decisive role in Ukraine today. The future of the country depends on the settlement of the situation in the southeast.