Currency liberalization: What will population and business benefit?

Author : Yuriy Hryhorenko

Source : 112 Ukraine

On February 7, a new law “On Currency and Foreign Exchange Operations” (adopted last June) comes into force. It will replace the Decree on currency regulation, which was adopted in 1993.
21:27, 6 February 2019

Open source

The new norms can be considered as monetary liberalization, but the changes are not so significant to quickly improve the business climate in the country.

Changes in monetary policy have been prepared for a long time. The currency restrictions were introduced in 2014 and they were positioned as temporary measures aimed at overcoming the crisis phenomena in the foreign exchange market.

"Given that the economic situation stabilized in 2016-2018, foreign exchange reserves were restored at the level of early 2014. Foreign borrowing was restructured and payments were made on time.

Ukrainian business and foreign investors were counting on easing the existing restrictions, which, in the opinion of many representatives of the real sector, began to restrain the development of the Ukrainian economy, ”says Oleg Parakuda, partner of the SLS Group law firm.

The key achievement of changes in the currency regulation sphere is the transition from declarations to real steps. They can be described as a transition from the concept of "only that provided by the law is allowed" to "everything that is not prohibited by the law is allowed".

Experts generally positively assess the changes adopted. "The currency legislation has become more structured - it will have the effect of creating clear rules of the game. "

On the other hand, Ukraine is used to following the “letter of the law” rather than the “spirit of the law”, so the risk is increased that at the initial stage individual payments will not be allowed without additional packages of documents from customers, ”said Viktor Shulyk, director of IBI-Rating market research agency.

Separate restrictions should have been lifted long ago, since their effectiveness is questionable, and most of the norms were more irritants than effective tools. This primarily concerns the operations of citizens with foreign currency - the volume of such transactions is insignificant (1.5-2 billion dollars per month) compared to the currency turnover of the business.

But we must not forget that the NBU has the right to introduce anti-crisis measures, as before. Therefore, everything depends on the stability of the foreign exchange market. If it continues, the National Bank will continue to introduce relief measures. With the devaluation of the hryvnia, limits and restrictions will be imposed again, but not more than half a year.

The ultimate goal of the NBU is the removal of all restrictions on the foreign exchange market and the transition to the free capital flow regime, and the regulator has promised to gradually abandon all prohibitions. However, this will depend on the economic situation in the country, which means the situation is not very predictable.

According to experts, there are few positive moments from currency liberalization for the population, since the most uncomfortable restrictions were removed earlier (low limit on purchase, sale currency only with passport).

According to Kreston GCG partner Artem Kovbel, there are only a few of them - raising the limit of investments abroad from 50 thousand dollars to 50 thousand euros and the possibility of online currency purchases.

It can be said, pleasant things for an audience with the smartphone. This not only makes life easier for customers and banks, but also reduces the risk of theft of funds.

At the same time, the limit on the purchase of currency by the population has been preserved - the equivalent of 150 thousand hryvnias per day, but from February 7, you can buy banking metals in the same volume (now you can buy no more than 100 grams of gold per week).

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Pryvatbank is already planning to launch a cashless purchase and sale of currency in self-service terminals and cash-in ATMs over the next three months. However, not all banks will immediately launch a new service, some will need to refine the software, while others will consider the demand.

"The population will be able to invest funds abroad without obtaining individual licenses and going through unnecessarily complicated bureaucratic procedures.

With the entry into force of the law, individual licenses will be replaced by a system of electronic limits set at 2 million euros per year for businesses and 50 thousand euros per year for individuals.

To make investments using the electronic limits system, it will only be necessary to submit the documents to the bank and go through internal control procedures. The new law effectively deprived the NBU of the functions of licensing investment activities abroad within the established limits, "explains Oleg Parakuda.

Ukrainians have the opportunity to invest abroad, invest in the securities of foreign companies, pay for life insurance policies in foreign currency, and also acquire government bonds directly (without the participation of an intermediary bank).

A rather insignificant positive is that from now on it is possible to transport cash or precious metals across the border in an amount of up to 10 thousand euros in equivalent without a declaration. Now this amount is 10 thousand dollars.

Legal entities received more bonuses. The long-term dream of many companies has come true - the period for making settlements under export-import contracts has been extended. According to Artem Kovbel, earlier it was 180 days, now it will be 365.

If earlier a company acquiring a product abroad, had to make prepayment, receive and take the goods through custom for 180 days, regardless of force majeure and so on (otherwise there will be fines from the NBU), now it has been given twice as long.

At the same time, the requirement for the mandatory sale of foreign currency income in the amount of 50% remains.

An important innovation is the abolition of individual licenses for currency transactions and their replacement with electronic limits - for legal entities it is 2 million euros per year. This will be a huge help in the work of many companies. Previously, for each purchase of shares on foreign exchanges or transferring money to a foreign account, it was necessary to obtain a license from the NBU.

Equally important is the cancellation of the procedure for registering foreign loans. "The essence of the procedure is that a company that received funds from abroad is obliged to report to the state about it. The whole process is rather complicated and cumbersome, takes a long time. But now companies are free from this, it should stimulate capital inflows to Ukraine. Or at least simplify it," emphasizes Artem Kovbel.

In turn, Gleb Segida also highlights the fact that you can now buy and accumulate foreign currency in accounts to pay debts in foreign currency, and make currency forwards to hedge export-import and debt operations, in particular currency swaps and NDF.

It also cancels the currency supervision of export-import transactions in the amount of up to 150 thousand hryvnia. But this is more pleasant news for bankers who will have less bureaucratic procedures.

On the other hand, if for a small business there is no monitoring of operations that do not exceed 150 thousand hryvnias, then medium and large companies operate with much larger amounts. For them, such a change will not change anything.

According to the law, all control over financial operations is entrusted to banks. They decide whether to pass your currency transaction or not. This can lead to a tightening of control.

After all, for conducting dubious transactions, banks will be subject to heavy fines and sanctions, financial institutions will avoid this by all means, demanding documents confirming the legitimacy of his financial transactions.

However, currency changes are far from complete liberalization. According to Oleg Parakuda, there are still fundamental restrictions for business, including restrictions on the repatriation of dividends in foreign currency, the sale of corporate rights and non-listed securities, the provision of loans in national currency to non-residents, the purchase of currency through credit and more.

Ukrainian business expects that due to the improvement of macro-financial indicators, these restrictions will be removed in the near future and a full-fledged free capital flow regime will be introduced. The downside is that the National Bank decided not to revise the limits of foreign companies (up to 7 million euros per month) and investments (5 million euros per month) dividends repatriation.

In general, currency liberalization will in part contribute to the elimination of schemes that until recently were used in transactions and foreign economic contracts.

It will also help attract foreign investment into the country, since foreign exchange restrictions did not support foreign business in investing in Ukraine.

On the other hand, a bias in the receipt of foreign currency from abroad may in the short term affect the hryvnia exchange rate.

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