Dollarization of Ukraine's banking system impeds the economy
National Bank: in 2013, dollarization was at a level of 27.2%, and now it amounted to 32.2%
If you name the most important problem of the Ukrainian banking system and the economy as a whole, it would be large dollarization of the banking system. According to official data of the National Bank, as of March 1, 2016, level of dollarization of the Ukrainian banking system amounted to 32.2%. This is a significant figure. In 2013, it was 27.2%, and 23.1% it was in 2007. In the developed countries, this figure is not more than 5-7%. We are very far from this level. And yet the banking system and the economy as a whole are suffering.
Unfortunately, endless upheavals in the financial market in the history of Ukraine led to the fact that Ukrainians love dollars and other foreign currency. Therefore there is nothing surprising in the fact that the share of foreign currency deposits in the total deposits of physical persons is more than 50%. Ukrainians after taking deposits from the banks, remain faithful to the tradition to keep money in foreign currency. At the same time, they do not pay attention, that the national unit in Ukraine is not the U.S. dollar, but hryvnia. But who ever thinks about it!
What is the main problem of dollarization of the banking system? The higher the dollarization of the banking system is, the higher the risk of foreign exchange losses and disasters. And now according to the results for January-February 2016 the banking system of Ukraine suffered losses in the amount of UAH 5.8 billion due to foreign exchange transactions. Yes, there are losses because of incomes received by currency speculators on the black market; real losses incurred by the banks for foreign exchange transactions. These losses do not only lie on the banks, but also on the deposits which are stored in Ukrainian these banks.
It would be reasonable to develop and launch a series of measures to reduce the dollarization of the banking system. And instead of talking about inflation targeting, which under dollarization of the banking system of Ukraine is impossible, even in theory, the head of the National Bank Valeria Hontareva should carry out a range of measures to reduce the dollarization of the banking system at least to the level of 30%. Here it would be a real reform. Then it would be easy to monitor how effective the National Bank and its management are. Reduced dollarization of the banking system - well done, did not reduce - please do not brag that you are doing reforms.
No one calls for the compulsory transfer foreign currency deposits in the hryvnia, or forbid receiving foreign currency deposits. It would be a mistake. But we must do something with that dollarization.
At the time, Republican Senators Ted Cruz and Marco Rubio in the US have offered to introduce a currency board regime to maintain the hryvnia in Ukraine. This mode provides a rigid fixation rate of the national currency with respect to "anchor" currency. This idea was proposed in 2014. But then the IMF was against it, and the idea was forgotten. Although the past two years, when the National Bank of Ukraine carried out the IMF's advice and actually made one of the biggest landslides hryvnia in the history of Ukraine, it showed that the IMF gave the National Bank false recommendations. Dollarization has not only decreased, as the IMF experts said, when recommended derail the hryvnia, but even, on the contrary, dollarization increased. Maybe now it is time to think about the advice of Cruz and Rubio? IMF has already given up on Ukraine, and will not give more money.
Fixing the value of the dollar in Ukraine is the best "medicine for the economy" of Ukraine. Do not forget that the dollarization of the Ukrainian economy in 2007 fell to a record level of 23.1% largely because it was a fixed rate of 5.05 UAH. Like a "balm," it ensured the de-dollarization of the Ukrainian economy.
It is still not too late, we need to start. International reserves of Ukraine are at the limit. All the talk about what will soon be the new currency infusion in Ukraine, have remained only like a conversation. The "currency swings" are killing the economy and the future of Ukraine. Further dollarization of the economy gives a risk of growth of dollarization to the level above 50%, and this means a complete collapse of the economy of Ukraine as an independent national economy.
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