Games of Currencies: Who is sponsored by agrarian sector of Ukraine

2015-02-03 11:49:36

Over the past year National Bank of Ukraine (NBU) and Ukrainian companies were playing a very interesting game. Ever since central bank of Ukraine implemented floating exchange rate, it seems that Ukrainian Hryvnya (UAH) was really struggling to stay afloat. Initial devaluation to 11 UAH/USD was understandable and easily explained: artificial currency rate support policy, run by the previous government could not be carried out infinitely, thus instead of gradual year-by-year adjustments of exchange rate, devaluation hit Ukrainian economy hard. Loss of Crimea and military confrontation in the East of the country led to further drop to 15 UAH/USD. Decline of exports revenue was another main reason for this decline stage. After initial confrontations, conflict in the East went into stalemate, while national currency continued its decline.

National Bank of Ukraine was staying out of currency regulation, while recording new exchange rate on a daily basis, taking interbank forex trading as a basis, apparently expecting stabilization, which never came. When in fall of 2014 it became evident that situation will not stabilize by itself, NBU rushed to defend national currency, implementing administrative measures, such as mandatory sale of 75% of foreign currency, received from exports as well as ban on dividend payouts. Some of these measures are still applied today. Their effectiveness may be debated infinitely. NBU even implemented new currency interventions for determining UAH exchange rate. At the same time, NBU kept the right to refuse claims for purchase of currency, which was seemingly higher than set rate. Checkmate, game over, central bank refused to acknowledge exchange rates, which were other than set by the institution itself. These measures were aimed at stopping further devaluation or at least slowing it down.

UkrAgroConsult experts conducted market analysis and would like to share the results of the measures taken.

The result of actions by NBU was predictable: creation of black forex market. There are 3-4 different exchange rates for Ukrainian currency. First rate is an official NBU rate: as January 30, 2015, it reached 15.95 UAH/USD. Second exchange rate is “cash” rate, the one applied in commercial banks. Such exchange rate applies at commercial banks during actual purchase of foreign currency by individuals. “Cash” rate is higher and reached 16.74 UAH/USD on January 30, 2015. The main issue with this exchange rate is lack of actual foreign currency in banks – in fact, it is literally impossible to purchase foreign currency at commercial banks. Final rate is actual or “black market” rate. The rate is applied during all of the operations, involving foreign currency in Ukraine at the moment. Such rate is not hidden, it is provided by banks upon request. As of January 30, it reached 21.10 UAH/USD.




Jan, 2015

Jan, 2014

UAH rate








Banks (cash)




Market (actual, black)





Therefore, difference between actual rate and NBU rate reached 5.15 UAH/USD or more than 32%. What does this mean for agrarian producers in Ukraine, as well as exporters?


Producer sets its price in UAH for sale inside the country. For instance, sunflower price reaches UAH 7 500 per ton and UAH 2 770 per ton in January 2015. Having sold these crops, producer will spend its money on purchase of fertilizers, plant protection, seeds, and machinery purchase and maintenance. Prices for said materials are calculated based on foreign exchange rate, set by the bank, which is the “real” exchange rate – 21.10 UAH/USD. Therefore, producers are facing higher expenses compared to previous years.


Exporter purchases commodities inside the country for UAH and sells it abroad, receiving exports revenue in foreign currency. What is supposed to be a beneficial operation for exporter, is not in reality. According to NBU decree, companies have to sell 75% of its foreign currency revenue as soon as the operation is complete. Sale of foreign currency is carried out by commercial bank that provides services to the company. Bank usually sells foreign currency for “cash” exchange rate – 16.74 UAH/USD, at best. More often than not, currency is sold only 10-15 kopiykas (coins – 1% of 1 UAH) higher than NBU rate.




Jan, 2015




Internal (elevator)


7 500

FOB (price of the exports contract)





6 699

FOB (cash)


7 031

FOB (actual)


8 862

FOB (calculated price)


7 489

Therefore, when we calculate export price for sunflower ($420), considering sale of 75% of foreign currency by commercial bank and 25% that may be sold at market price, we get UAH 7 489 per ton. Analysis indicated that exporters face the situation of declining sunflower oil price, which already matched internal market price. At the same time, exporter is responsible for additional transport and customs cost.

Who is winning?

Banking sector benefits the most from given situation, as it helps the sector to stay afloat. Banking sector in Ukraine faces one of the most difficult times in its history, given the factors, mentioned above. Thus, any influx of cash in banking sector is a lifebuoy, which is pumped by real sector companies, helping to either avoid or delay banking sector collapse, which is damaging to all parties involved. The question remaining on the table is how much strength left in real sector to keep pumping this buoy.