The following is a chart based off of data originally published in the Kyiv-based Center of Economic Strategy's "Ukraine War Economy Tracker." The Kyiv Independent is republishing it with permission.
Dollar exceeds 40 hryvnias as budget needs grow
Average daily official and market exchange rates UAH/USD
Cash rate Official rate
Source:NBU minfin.com.ua
In May, the official dollar exchange rate exceeded 40 hryvias (Hr) per dollar for the first time in history.
While the 40 hryvnia mark is perceived to be a worrying threshold, the weakening of the hryvnia is a small but useful help for the Ukrainian budget. The state will be able to raise a little more money through excise taxes and foreign financial assistance.
In such a difficult war-time environment, every little bit helps.
The weakening happened against the backdrop of a large-scale package of easing currency restrictions by Ukraine's central bank, National Bank of Ukraine, and the growing needs of the Ukrainian state budget.
At the beginning of the full-scale invasion, the bank fixed the official dollar exchange rate to prevent panic in the foreign exchange market. This was a successful step that helped keep the situation under control.
In the months that followed, the gap between the official and market exchange rates widened. The central bank adjusted the official exchange rate once but did not abandon the fixing of the exchange rate for almost 20 months. During this period, the market exchange rate reached its historic low of 42.5 hryvnias to the dollar at the end of 2022, while the official rate was still 36.6.
Last October, managed exchange rate flexibility was introduced. Through foreign exchange interventions, the bank firmly controlled the direction of exchange rate movements, and in the first weeks, the hryvnia even strengthened. But later, the bank began to gradually devalue the hryvnia.
In early May 2024, the central bank announced the largest easing of currency restrictions since the start of the full-scale war. Among other things, the regulator allowed settlements on external loans to businesses and lifted restrictions on imports of services. This increased demand for foreign currency and increased pressure on the hryvnia.
A significant amount of foreign exchange reserves allows the bank to act in the foreign exchange market as it sees fit. This means that the current devaluation is planned and controlled.
