The hryvnia may be pegged to the euro: how it will change the economy and lives of Ukrainians
15 May 16:45
The re-pegging of the hryvnia to the euro will have a different impact on Ukrainians depending on their financial activity, but in general, for most people, the changes will be almost imperceptible in everyday life. This was reported by "Komersant Ukrainian" with reference to Apostrophe.
The National Bank of Ukraine (NBU) is considering a gradual reorientation of its currency policy from the US dollar to the euro. This was announced by NBU Governor Andriy Pyshny in an interview with Reuters. According to him, this discussion at the NBU Council began in February 2024.
The main reasons for this step are Ukraine’s strategic course toward European integration, the EU’s growing role in supporting the country’s security, and rising risks in global markets. The focus is on increasing the share of the euro in foreign economic settlements and changing the global schedule of currency priorities amid the policies of the US President Donald Trump’s administration.
Euro instead of dollar?
Historically, Ukrainians have been guided by the US dollar – even after the introduction of the hryvnia in 1996, exchange rate changes were often assessed in dollar terms. At the same time, there has never been an official hard peg to the dollar: the exchange rate was formed on the basis of market mechanisms, and the dollar was used for cross-settlement with other currencies.
However, in the current environment, experts believe that the logic of changing the benchmark is quite reasonable. According to Société Générale’s Finix Kalen, Ukraine’s course toward European integration should be accompanied by financial convergence with the euro.
Analyst Serhiy Fursa supports this idea, although he believes that the transition will take time and careful preparation by the NBU. Oleh Hetman, coordinator of the Economic Expert Platform, believes that this can happen within two to three years.
Read also: Euro instead of dollar: how the NBU plans to change the currency policy
How will the hryvnia peg to the euro affect the economy?
For ordinary Ukrainians who are not engaged in foreign economic activity, the transition to the euro as the main reference currency will hardly be felt.
There will be no changes in salaries. The hryvnia will remain the national currency. But some people may start keeping their money in euros rather than dollars because of the greater stability and transparency of the exchange rate.
In addition, most goods from the EU, such as appliances, household chemicals, and medicines, may have more stable prices in this case, as their cost will depend directly on the euro, not the dollar.
If the hryvnia is pegged to the euro, the dollar will be determined by the cross rate. In other words, the dollar will continue to be listed in exchange offices, but will be calculated in euros. This will not create any difficulties for most people. This will not create any difficulties for most people.
Another issue is for business. Exporters and importers who work mainly with EU countries may benefit from this reorientation due to a more stable and predictable euro exchange rate. In 2024, Ukraine’s trade turnover with the EU exceeded $28 billion in the first quarter alone, while that with the United States was less than $4 billion for the year.
In addition, it will be easier for businesses focused on the European market to plan costs and profits.
Is full substitution possible?
Despite the growing influence of the euro, a complete switch to it as a settlement currency is still a premature scenario. Some Central European countries, such as the Czech Republic or Poland, have retained their national currencies, although there is a clear economic correlation between them and the euro.
According to Serhiy Fursa, after Ukraine joins the EU, a certain “natural” peg to the euro will occur automatically. At the same time, experts warn against the introduction of a fixed exchange rate, which, in their opinion, may limit the flexibility of monetary policy and the ability to regulate the economy in times of crisis.
As a result, most Ukrainians will not see their lives change dramatically, but the transition to the euro will help increase financial stability, reduce exchange rate fluctuations, and make payments with Europe more convenient.
Читайте нас у Telegram: головні новини коротко
