Ukraine launches monetary reform, hryvnia to be put into circulation (09/01/96)

Ukraine launches monetary reform, hryvnia to be put into circulation

by Marta Kolomayets
Kyiv Press Bureau

KYIV - The Ukrainian government announced on August 25, amid holiday celebrations marking the fifth anniversary of Ukraine's independence, that it will introduce the long-awaited national currency, the hryvnia, on September 2.

Appearing on State Television, National Bank Governor Viktor Yushchenko and Deputy Prime Minister Viktor Pynzenyk informed Ukraine's citizens that the hryvnia will replace the karbovanets, which became legal tender in 1992 soon after the collapse of the Soviet Union.

Both currencies will be in circulation for a two-week period, from September 2 to September 16, but this may be extended if it proves to be an insufficient time frame to complete the changeover, said Mr. Yushchenko. During this period, the karbovanets will be exchanged for the new currency at the rate of 1 hryvnia for 100,000 karbovantsi. In effect, Ukraine's monetary reform does nothing more than chop five zeroes off the karbovanets.

As karbovantsi have been selling at 176,000 to the U.S. dollar for some time, the hryvnia will initially be pegged at 1.75-1.76 to the U.S. dollar and 1.18-1.20 to the DM. Buyers will require 3,000 Russian rubles to purchase 1 hryvnia.

Ukrainian National Bank officials said they are considering pegging the hryvnia to a hard currency or basket of currencies, and will apply for an international credit rating in approximately 16 weeks.

In contrast to Russia's monetary reform of 1993, holders of the old Ukrainian currency will be allowed to exchange as much of it as they like, but sums over 100 million karbovantsi (about $600) will be transferred to special accounts rather than issued in cash. In previous currency reforms in many former Soviet republics, people were often given insufficient time to exchange their money, or faced limits on the amount of bills they could exchange.

Ukrainian citizens initially met news of the impending introduction of the hryvnia with panic, scrambling to change their karbovantsi to dollars, for fear that their money would depreciate in value. Many lined up at exchanges to buy out dollars, which were in short supply over the weekend. Vendors at various open markets refused to take karbovantsi, also known here as coupons, trading only for dollars.

In Odessa, Ukraine's major port city, people were trading the karbovantsi for 250,00-300,000 to the dollar on Monday. In Kyiv, soon after the presidential decree was signed, the karbovanets was trading as low as 220,000 to the dollar, down almost 50,000 from just the previous week.

Government officials stepped up a public relations campaign to calm Ukrainian citizens during this transition period. "No one will lose money in this exchange," promised Mr. Yushchenko. "We hope never to return to the time when serious economic decisions were built on political games," added Mr. Pynzenyk.

Prime Minister Pavlo Lazarenko also appeared on Ukrainian State Television after a hotline phone number for citizens who had inquiries about the new currency was established on August 25.

"There are no grounds for concern. The reform is completely transparent, without restriction or confiscation. All money held by the population, without exception, will be gradually exchanged in the two weeks between September 2 and September 16.

"I want to stress one point and ask all of Ukraine's residents not to rush to exchange their money today. There is no need to play into the pockets of commercial banks and commercial structures with your rash actions. They seek to make additional profits from every decision taken by the government," said the prime minister.

The government also hopes that Ukrainian karbovantsi, stashed away in cupboards and mattresses and circulating in the shadow economy, will be drawn back into Ukraine's banking system. Mr. Yushchenko estimated that these funds add up to 376 trillion karbovantsi (over $2 billion) - twice the size of the money turnover in the official economy.

The National Bank governor said citizens of Ukraine will be able to change their money at more than 330,000 exchange points, including their places of employment and post offices. Foreigners and citizens who are not employed will be able to exchange their money at almost 20,000 different currency exchange offices/banks throughout Ukraine.

Mr. Yushchenko also noted at the August 27 news conference, where he showed samples of the new banknotes in denominations of 1, 2, 5, 10, 20, 50 and 100 hryvni, that Ukraine's monthly inflation rate could jump between 8 and 10 percent as the new currency is introduced. He added that this would be due to speculation on the new currency and rising energy costs, as gas and electricity prices are reaching world market prices.

However, Mr. Yushchenko said no inflation would be sparked by the government, and no additional money would be printed.

In an effort to boost trust in the government, the Cabinet of Ministers announced on August 27 that it would freeze prices for goods and services for one month, beginning on September 2, the day the hryvnia is introduced.

It has also threatened to revoke licenses of currency exchange offices that have been selling dollars at inflated rates and exploiting rumors that the old currency may be confiscated once the new banknotes come into circulation.

"It's the best moment to introduce the new currency, because we have now managed to stabilize the economy," explained Mr. Yushchenko.

The Ukrainian government has been promising for years to introduce the hryvnia, but economic conditions were never considered sufficiently favorable. The new currency, printed in Canada and England, has remained sealed in bank vaults in Kyiv since 1993.

This year the inflation rate in June and July was 0.1 percent, and the exchange rate for the karbovanets has held steady since December of 1995. Therefore, the fifth anniversary period of Ukrainian independence - prior to the onset of winter and its attendant soaring of energy prices - seemed ideal for the introduction of the new currency.

Ben Slay, an analyst for the Prague-based Open Media Research Institute, said the introduction of a national currency in a post-Communist country can create powerful new symbols of national identity.

This can be precisely what reformers in Ukraine need to implement new economic policies, restructure enterprises and financial institutions, and encourage exports and foreign investment.

Markian Bilynsky, the director of the Pylyp Orlyk Institute, a private U.S. organization monitoring reforms in Ukraine, said "The hryvnia's introduction may renew confidence in the Ukrainian currency, which in itself is a factor of stability."

However, Mr. Bilynsky added, "Perhaps the government should have waited until they finalized their stabilization fund deal with the International Monetary Fund."

Countering such suggestions, Mr. Yushchenko said, "The introduction of a new currency does not depend on the IMF." He explained that the Ukrainian government will continue its talks with the world financial organization in September.

One government official said he believed that Prime Minister Lazarenko had already won approval for the IMF-backed $1.5 billion stabilization fund during his visit to Washington in late July, while National Bank insiders said that the introduction of the hryvnia may, in fact, act as a catalyst for Ukraine to receive the funds.

"The loan would reflect international confidence in Ukraine's reform program," explained the National Bank governor.

Description of the new money

The multi-colored hryvni will feature portraits of Ukraine's historical figures.

The 1 hryvnia note - dark green in color - will feature a portrait of Prince Volodymyr the Great on the front, and an image of the ruins of Khersones, the site where he converted to Christianity, on the back.

The 2 hryvni note will feature the portrait of Prince Yaroslav the Wise on the front. Rust-brown in color, it will depict the Cathedral of St. Sophia on the back.

Hetman Bohdan Khmelnytsky will appear on the 5 hryvni note, which will be dark blue in color. A picture of the historic St. Elijah's Church in Subotiv, where he was once buried, will appear on the back.

The 10 hryvni note - violet in color - will feature a portrait of Hetman Ivan Mazepa; the back will include a depiction of the Kyivan Cave Monastery (Pecherska Lavra).

Poet and national leader Ivan Franko will be featured on the 20 hryvni note, which will be greyish in color and depict the Lviv Opera Theater on the back.

Also violet in color, the 50 hryvni note will feature Mykhailo Hrushevsky, Ukrainian historian and president of the Ukrainian National Republic. The back of the bank note will feature the Parliament building in Kyiv.

The 100 hryvni note will feature Ukrainian national bard Taras Shevchenko on the front. Green in color, the back of the note will depict St. Sophia Cathedral.

Also debuting on September 2 will be "kopiyky" (kopecks), coins in denominations of 1, 2, 5, 10, 25 and 50, on which the national symbol, the trident (tryzub), will appear surrounded by a wreath of wheat stalks and oak leaves.

The coins will be minted in 1, 2, 5, 10, 25 and 50 denominations. The 1, 2 and 5 will be silver in color, the 10, 25 and 50 will be gold in color.

In an effort to show how state-supplied goods will now be priced, the National Bank submitted the following examples: bread will now cost 66 kopecks, a liter of milk will be priced at 50 kopecks, sugar will be available at 1 hryvnia 17 kopecks per kilogram, and pork will run about 3 hryvni 69 kopecks a kilogram.

Soap will cost 70 kopecks and a box of matches will be 5 kopecks.

A ride on the subway, previously set at 20,000 karbovantsi, will now cost 20 kopecks, while a stamp that cost 5,000 karbovantsi will now cost 5 kopecks.