Stable hryvnia greets introduction of monetary reform in Ukraine (09/08/96)

Stable hryvnia greets introduction of monetary reform in Ukraine

by Marta Kolomayets
Kyiv Press Bureau

KYIV - The hryvnia, Ukraine's new national currency, debuted on the streets of Kyiv on Monday morning, September 2, but on this first day of the long-awaited monetary reform, many residents combed the city looking for open banks and currency exchanges to trade in their old karbovantsi for the new, multi-colored bills.

Although pensions and wages were paid out to senior citizens and state sector employees in crisp new hryvni and shiny kopiyky (coins) on Monday morning, workers in the private sector, tourists and foreigners waited in long lines to change karbovantsi and dollars into the new currency.

There was no sense of panic on the streets, but long lines formed at the post office, where pensioners first lined up to collect their measly monthly allotment (the average pension is a little over 4 million karbovantsi, or 40 hryvni, which amounts to less than $25 per month) and then lined up at another window to trade in their karbovantsi (also known as coupons) for new hryvni.

"I've been here for three hours," said Olha Paziak, 65, a retired teacher of Ukrainian language at Kyiv State University, who strolled around the post office, waiting to collect her pension.

"Although the government has assured us that we won't be cheated with this monetary reform, why take a chance," she said as she waited for her husband to exchange their life's savings of 50 million karbovantsi to 500 hryvni, which is less than $300.

"Oohh, they are nice," she exclaimed as her husband brought a stack of new bills for her to examine. "And they feel like real money, not just plain paper," she said.

The new currency, in effect, slashes five zeroes off the karbovanets and brings to an end an era when every Ukrainian could call himself a millionaire.

It seems that the new currency is already having a psychological effect on Ukrainian citizens. Many stood in line examining the portraits of historical leaders - Prince Volodymyr the Great and Hetman Bohdan Khmelnytsky, who appear on the 1 hryvnia and 5 hryvni notes, respectively - and holding the bills up to the light to see the watermark and other symbols that should eliminate easy counterfeiting.

"I'd like to see Shevchenko, but my pension is too low," joked one elderly gentleman, reviewing the hryvni he received. (Ukraine's national bard Taras Shevchenko appears on the 100 hryvni note, which is worth about $59.)

"I've traded in some of my hryvnia bills for kopiyky," said Ina Zhukova, a retired State Television employee, who still works to support her family.

"This is by special request from my grandson, who doesn't remember coins," she said. Ukraine has not had coins in circulation since 1991.

Several banks and most currency exchanges were closed on September 2. Some were awaiting the delivery of the new hryvni, while others had been closed down by the National Bank of Ukraine for speculating on the karbovanets and sharply inflating the dollar rate of exchange in the last days before the reform was introduced. (Fourteen currency exchange offices were closed down and four banks had their licenses revoked in Kyiv alone, reported Interfax-Ukraine.)

Many stores also remained closed on Monday - claiming either "inventory day" or "closed for technical reasons" - as merchants spent working hours posting the new hryvnia prices alongside the old karbovanets signs.

But business was brisk at Mekos, a joint-venture mini-market, which is open almost 24 hours a day.

"People are paying in both karbovantsi and hryvni," said Natasha, a sales clerk, opening up her cash register to show both currencies.

"But, I'm having trouble with the hryvni; they are too wide for the money slots in the register," she explained.

Although there seemed to be a shortage of hryvni available to all who wanted to exchange karbovantsi and dollars, Deputy Prime Minister Viktor Pynzenyk said that in a few days, practically all regions in the country would receive sufficient amounts of hryvnia notes and store customers would soon be getting their change in hryvni, not karbovantsi.

"We've printed enough hryvni, and any shortage of the new currency is out of the question," he said on Ukrainian Television.

The Ukrainian government, which launched a wide-reaching public relations campaign aimed at its citizens after announcing the introduction of the hryvnia, seemed to keep to its promises that prices would be frozen for one month after the new currency was introduced.

Close to 380 trillion karbovantsi (about $2 billion) are estimated to be circulating in the shadow economy, and government leaders hope that they will be traded in for hryvni within the next two weeks.

By mid-week, the situation had stabilized, and Ukrainian government leaders said they were satisfied with the progress of monetary reform.

"The exchange of the karbovanets for the hryvnia has so far produced no unexpected problems in any part of the country," said Mr. Pynzenyk, appearing on television on Monday evening, September 2.

"There was even less agitation than we expected," he said.

According to government leaders, the hryvnia should remain stable until the end of the month. It can currently be exchanged for 100,000 karbovantsi to 1 hryvnia, and both residents of Ukraine and non-residents can exchange their karbovantsi for hryvni until September 16, the last day both currencies will circulate in Ukraine. However, if the government sees that the transition is difficult, in special circumstances, that deadline may be extended.

The National Bank of Ukraine has also set its exchange at 1.76 to the U.S. dollar, 1.18 to the DM and about 3,000 Russian rubles to the hryvnia. At the Interbank Currency Exchange, it debuted at 1.76 hryvni to the dollar.

Mr. Pynzenyk said the hryvnia's rate against the U.S. dollar had remained stable during its first two days in circulation.

In downtown Kyiv, the exchange rate at currency exchanges was anywhere from 1.76 hryvni to the dollar to 1.68 hryvni to the dollar, with 1.7 being the average.

According to the National Bank of Ukraine, these rates are still within the limits of 10 percent higher or lower than 1.76 to the dollar. NBU Governor Viktor Yushchenko said he expects the hryvnia circulation to exceed that of the karbovanets by September 8-9.

Ukraine has about $2 billion in gold and hard currency reserves, according to NBU officials. The government expects to receive a $1.5 billion stabilization fund for the new currency from the International Monetary Fund.

President Leonid Kuchma said he hoped the introduction of a national currency will encourage foreign investment. Western analysts agree. In order for this to happen, they say that the Ukrainian government must accelerate the sale of inefficient state-owned enterprises. The government also must work on a tighter fiscal policy, analysts said, pointing out that the state owes almost $2 billion in back wages to its employees.