TRENDS IN THE DEVELOPMENT OF THE UKRAINIAN FOREIGN EXCHANGE MARKET DURING THE WAR

Abstract

The article scrutinizes key trends in the development and regulation of Ukraine's currency market amid the ongoing war. It assesses how the population and businesses reacted to the war's onset on the foreign exchange market, exploring potential consequences for the national currency's exchange rate. It is determined that the population can react to the war in the following ways: by converting bank deposits into cash in foreign currency or cryptocurrency, increasing the demand for cash in foreign currency, and escalating the volume of money transfers abroad. Highlighting the devaluation of the hryvnia against the US dollar and the euro following russia's full-scale military aggression, the article delves into the processes of implementing currency restrictions by the National Bank of Ukraine (NBU) to stabilize the market. An analysis of the official and cash exchange rate dynamics of the hryvnia to the US dollar is conducted, examining the NBU’s shift from a floating to a fixed exchange rate. The timing's impact on weekly interventions and the institution's gold and foreign exchange reserves is explored. The article sheds light on liquidity issues related to worn foreign currency banknotes, regulated by the NBU in the summer of 2023. Emphasis is placed on the hryvnia exchange rate's dependence on the cash currency influx from banks and labor migrants through unofficial money transfer systems since the war's commencement. Revealing that nearly half of all money transfers to Ukraine occurred through unofficial systems, the article underscores challenges in assessing the actual balance of cash inflows and exports. Furthermore, it examines the potential exploitation of traditional unofficial money transfer systems (such as Hawala) and cryptocurrency transfers as means to circumvent central bank currency restrictions. The practical value of the article lies in the fact that, based on the study of the conditions of the functioning of the currency market of Ukraine in 2022-2023, the author identifies the reasons for the imbalance of currency flows in Ukraine. Additionally, the author draws conclusions about the adequacy of the monetary and currency policy of the National Bank of Ukraine during the war.