Over the past few weeks Ukrainians have watched anxiously as America’s currency has threatened to plummet after years of relative stability. Although the exchange rate drop of the dollar against the Ukrainian hryvnya was in line with global trends, it was also thought to be tied to changes on the gas market and connected to anti-inflationary measures. The panic proved short lived, however, and by the end of last week the dollar appeared to be well on the way to its former position against the hryvnya.
Since April, 2005 the official price of the US dollar has remained at UAH 5.05. While this figure did not change in reports issued by the National Bank of Ukraine, sales of dollars suddenly dropped significantly in early March. On March 17-18 the price of the American currency broke the psychologically important barrier of UAH 5 at many banks and currency exchange outlets and for several days a dollar cost UAH 4.60-4.70 on the streets of Ukraine’s major cities. In scenes reminiscent of the immediate aftermath of the 1998 Moscow financial crash, some currency exchange offices found that they could not provide people with hryvnyas because they did not have enough national currency to meet demand as a result of the number of Ukrainians selling their dollars and buying up hryvnyas.
World influence diluted
Ukraine traditionally goes through currency oscillations during elections. This was particularly true during the presidential campaign in 2004-2005 when the street price of the dollar was very close to UAH 6. This time the sudden jump was primarily connected with the general economic crisis in the US because the hryvnya is pegged to the dollar, though experts have stated that the economic crisis in the US is not a particularly significant factor because of different levels of inflation on both markets. Information agency Interfax-Ukraine, quoting Bloomberg, reported that the dollar started to grow on the world market at precisely the same time as it began falling in Ukraine.
Victims of panic and speculation
Market operators have accused people of panicking at the sudden dollar drop and say that speculators used the panic and artificially decreased the dollar’s value in order to profit. “The sudden fall of the dollar is a result of speculative changes in exchange rates which are themselves based on rumours about the hryvnya’s revaluation at the end of March and a panicky mood on the part of small investors,” says Oleksandr Dobrovolskiy, deputy head director of treasury at Bank Forum in Kyiv.
Buy high, sell low
“Unfortunately, many Ukrainians have not learned from past experience and continue to sell the dollar when it is at the bottom of its fall and buy euros when it is at the top of its curve,” National Bank of Ukraine official Anatoliy Shapoval commented on March 26. He emphasised that the American currency will continue to oscillate within a defined corridor, which is UAH 4.95-5.25 to the dollar and confirmed that the National Bank is not planning a re-valuation of the hryvnya.
The recovery of the dollar came encouragingly quickly, returning to the boundaries of its Ukrainian market position just in time for President Bush’s state visit. On March 24 the dollar was being sold at UAH 4.80 per to the dollar and by the end of the week dollars cost UAH 4.90-4.98. “I think in a week the currency will have stabilised completely and the exchange rate will be about UAH 5 to the dollar,” forecasts Bohdan Klyshchuk, an analyst from the investment bank Millennium Capital.
Looking forward at the coming months, market insiders remain confident that the dollar price will remain stable in Ukraine. “I think that in the next half-year the price of the dollar will not change if there is no serious change in the political situation in the country,” says Dobrovolskiy.
And finally: Gas again
However, at the end of last week (March 27-28) the sudden fall of the American currency in Ukraine was being explained as another symptom of the country’s gas politics. The troublesome gas question could certainly influence exchange rates, with the sudden disappearance of middleman UkrGazEnergo, which had previously bought gas from fellow middleman RosUkrEnergo before selling it on to Ukrainian companies. “UkrGazEnergo’s clients paid for their gas in hryvnyas but it then had to pay [to RosUkrEnergo] in dollars and, thus, these transactions have influenced local demand for dollars. The removal of this trade has caused a greater supply of dollars to appear on the market, far outstripping current levels of demand,” says Klyshchuk. Analysts argue that this could be offset by allowing Naftogaz to take over UkrGazEnergo’s role in the gas trade.
