Friday, December 5, 2008

Currency collapse in Ukraine

The battle in Ukraine to stop the currency plummeting

Ukraine’s currency is plummeting in response to the country’s declining economic prospects and financing difficulties. With the IMF now having a major say in policy decisions, non-market solutions are improbable; instead, the aim is to achieve an orderly depreciation rather than a rout. Ultimately, a weaker exchange rate will be beneficial to the economy. Yet the adjustment will be painful, and this may fuel political impulses that run counter to IMF strictures.

The hryvnya hit an all-time low of HRN7.38:US$1 on November 27th, a fall of around 38% from the HRN4.60:US$1 rate seen in the first week of July. The National Bank of Ukraine (NBU, the central bank) had been attempting to defend the currency through interventions in the foreign exchange market, but having seen reserves fall by 15% in October alone, to US$31.9bn, it can ill afford to further defend the currency. ...