The National Bank of Ukraine (NBU) spent $2.5 billion on foreign exchange interventions in the first 20 days of January 2025 alone to maintain the exchange rate of the hryvnia.. That is, more than 1 billion is spent from foreign exchange reserves every week.. Doll. In 2024, the NBU spent $34.8 billion on this. – 22% more than in 2023. If this trend continues, the expected foreign exchange “reserves” of the National Bank may not be enough to maintain the “planned” average annual dollar exchange rate.

Danylyshyn noted that the devaluation of the hryvnia on an annualized basis amounted to 11.4% (January to January). “However, neither significant foreign exchange interventions by the NBU nor the devaluation of the hryvnia stop foreign exchange demand,” the specialist said.

He noted that the bulk of the rush demand for foreign currency is generated by the population. In 20 days of January, Ukrainians bought more than $930 million. cash and non-cash foreign currency (net), which amounts to 39% of all NBU interventions.

In 2024, the purchase of foreign currency by the population amounted to 35% of the NBU foreign exchange interventions, in 2023 - 17%, in 2022 - only 4%. And in 2024, the population increased the purchase of foreign currency by 3 times compared to 2023. Danylyshyn calls this growth a geometric progression and notes that foreign exchange demand has increased even despite the improvement in fundamental macroeconomic factors.

“Over the past year, the country’s trade balance improved by $2.5 billion.. , as a result of which the net purchase of foreign currency by businesses and banks even decreased (by 5%). . In my opinion, the key factor in destabilizing the foreign exchange market was the NBU’s policy of currency liberalization. Since October 2023, a flexible exchange rate regime has been introduced; during 2024, a number of restrictions on the withdrawal of capital from the country were abolished,” says Danylyshyn..

He recalled that the National Bank planned that the additional outflow of foreign currency against the backdrop of market liberalization would amount to $4 billion in 2024. “However, the actual losses turned out to be at least twice as large,” the former head of the NBU Council is confident.

Danylyshyn also believes that the National Bank does not want to acknowledge the impact of this factor on the hryvnia/dollar exchange rate. Thus, in the “Macroeconomic and Monetary Review” of the NBU dated January 2025, the regulator explains the deterioration of the foreign exchange situation by “significant budget expenditures” of the government and “seasonal factors”.

“In the NBU review, the phrase “seasonal factors” is mentioned 16 times, and the word “budget” – 17 times. In the NBU review there is not a single mention of the role of currency liberalization and flexible exchange rate formation in increasing foreign exchange demand,” says Danylyshyn.

According to his calculations, government spending “a priori could not have caused such a large-scale increase in foreign exchange demand”. The former head of the NBU Council notes that state budget expenditures for 2024. grew by only 12% compared to 2023, and in dollar equivalent - by 1.1%, while NBU foreign exchange interventions increased by 22% over the year.

Danylyshyn concludes that currency liberalization from the NBU did not help absorb balance of payments shocks, and on the contrary, it destabilized currency expectations. “A flexible exchange rate, in conditions of the dominance of non-market sources of covering the foreign currency deficit, is not only unable to absorb currency imbalances, but, on the contrary, strengthens them due to the imbalance of currency expectations (this fact has long been known to economic science and practice),” says the specialist.

At the same time, the devaluation, according to him, has already had a cyclical effect on the growth of domestic prices, i.e.. Imported goods account for more than 60% of retail turnover in Ukraine. Inflation reached double-digit levels at the end of 2024 and is increasing further.

“Now, increased foreign exchange demand has to be satisfied at the cost of significant interventions by the NBU, washing away the country’s foreign exchange reserves, which undermines the long-term macro-financial stability of the state. The IMF expects that the NBU's net interventions will amount to 36 billion (+5%), which should ensure the maintenance of the average annual exchange rate at the level of 43.4 UAH/USD. (+8%). Considering unbalanced currency expectations, the planned funds may not be enough,” summarizes Danylyshyn.

Let us recall that at the same time, the head of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, Daniil Getmantsev (“Servant of the People”), is confident that the abolition of the fixed dollar exchange rate in Ukraine and currency liberalization in general are positive factors. He noted that such steps made it possible to increase the average monthly volume of banks’ transactions on the interbank market from $0.9 billion. during the fixed exchange rate period up to $2.4 billion. after switching to controlled flexibility mode.

At the same time, on an annual basis, the supply of foreign currency by banks on the interbank market tends to grow, the people’s deputy notes. So, in the 4th quarter of 2024 it was 37% more than in the same period of 2023. However, it should be noted that before the full-scale war, the volume of currency trading by banks on the interbank market was about $10 billion.

“Although the market remains far from self-balancing (as it was before February 2022), the almost threefold increase in the supply of foreign currency by banks on the interbank market after the abolition of the fixed exchange rate is a positive trend. All other things being equal, this reduces the pressure on reserves and accelerates adaptation and a gradual return to the floating exchange rate that was in effect before the full-scale war,” Getmantsev noted..