New Currency Exchange Rules

The last seven weeks have been very confusing to those that exchange currencies in Ukraine. On September 23 the National Bank of Ukraine (NBU) enacted new Currency Exchange Rules.  They required that people who exchange foreign currency must present an ID and the business that tenders the trade would be obligated to make copies of the paperwork. This has been bewildering for Ukrainians, foreigners and the banks themselves. This could also create a massive nightmare for those attending EURO 2012 football games. Some of the kiosks that exchange money just closed because they didn’t want to deal with the bureaucracy. The Ukrainians didn’t like the idea of their personal info floating around while the expats and foreign tourists were S.O.L. because most of the banks would not exchange any money at all unless the person showed a Ukrainian Passport.

The official reason for this rule change was that it was a new tool to fight money laundering and the underground economy. Supposedly, there is $70 Billion in foreign currency in Ukraine that is hard to track. However, it seems more likely that they are doing it to stop people from selling the Hryvnia which causes it to weaken against foreign currencies. The NBU announced a series of gold investment coins that they hope people will buy instead of speculating in hard currencies. These come in bars ranging in size from 1 gram to 1,000 grams.

            There were many complaints from embassy employees about their inability to exchange money. After some time, the banks did start to allow exchanges by foreigners from hard currencies into the Hryvnia. And finally the NBU relaxed the rules on October 28 so that an ID must be shown when up to the value of 150,000 Hryvnia is purchased but a copy of the ID does not have to be made. Of course, this is for a purchase into Hryvnias. People who are buying foreign currencies must still leave a copy and foreigners must show a receipt from the original purchase to exchange the leftover funds back into their currency.           

            These rule changes do not affect me too much because I rarely exchange currencies. If I need some extra cash I just use a bankomat (ATM). The last time I exchanged some money was during August when I got rid of some extra Euros that I had acquired. I just handed the money to someone at the exchange window and received Hryvnia and a simple receipt that had the details of the transaction.

            During the past week I tried to swap some money to see how the process had changed since my last transaction. (This time it would be some leftover rubles.) I went to a bank and when I approached the exchange window they sent me back to one of the tellers. She asked for my passport and the amount of money that I was going to exchange. She then checked a list that she had on her desk. I have no idea what was on the list. She also made a phone call but I wasn’t sure if it was for my transaction or regarding the person who was ahead of me but was now standing to the side. She gave me 3 copies of a sheet of paper that had the particulars of the exchange including my name (but not my passport number). She put an official stamp on each one. I then took these back to the currency exchange window where my passport was checked again. I received my Hryvnias, a copy of the stamped transaction details plus a certificate that could be used for the “exchange of unspent Hryvnias for foreign currency”.  One of my friends said he exchanged some dollars at a kiosk this week and he just handed over dollars for Hryvnia. No extra paperwork was involved. Seems like this is easier but it would be a big mistake if you have a larger amount of money remaining at the end of your trip and were unable to convert it back.

The relaxation of the rules is temporary. They are set to become stricter after the end of the Euro 2012 games. I guess it is possible that this may reduce the demand for hard currencies but I think it is a little scary that the rules will be more severe than most of the other places in the world. I will not even talk about the current restrictions of 1,000 Hryvnia per person that is a rule that is not really enforced at border crossings. I personally do not take restrictions on the free market of currency exchange lightly.  Actually these new rules and regulations are making me think of some of the other events that have happened in the past around the world.

·        The Weimar Republic in 1922 forced its citizens to exchange their foreign currencies into German marks. Government officials actually would search customers at restaurants and other business and seize currencies that were not turned in. Eventually, Hyperinflation destroyed the savings and pensions of the entire country.

·        The Roosevelt Gold Confiscation of 1933 required that all privately held gold in the United States be sold to the government. After this was completed, the dollar was devalued against the price of gold and the US made large profits on their seizures.      

·        During the Argentine Economic Crisis of 1999-02 many people tried to convert their money into dollars and get their money out of the country. This caused a run on the banks and the government froze all of the accounts except for minor withdrawals. All dollar denominated accounts were forcibly converted into pesos at the official rate by the government. The resulting hyperinflation wiped out the savings of the middle class.

·        After the Ukrainian Hyperinflation of the early 1990’s the Hryvnia was set at 1.76 to the dollar. By 2008 it had fallen to 4.8 to the dollar. Then in about three months in late 2008 it fell to 7.9 to the dollar. At this time anyone who had loans payable in dollars had to pay 65% more. The Hryvnia since has been pegged at an 8-1 ratio to the dollar. But how much longer can this last?

Posted by John