The population continues to buy foreign currency

The National Bank recorded a sharp increase in the volume of purchases of cash foreign currency by the population. In the last four months of last year, $6.1 billion was withdrawn from the banking system, representing more than 80% of the currency outflow for the entire 2010. Experts believe that the negative trend of dollarization of the economy may intensify in the coming year.

In 2010, the increase in cash dollars and euros outside the banking system amounted to $7.3 billion, which is only slightly less than in 2009 — $9.7 billion, according to the National Bank’s report on Ukraine’s balance of payments published on Friday. Despite the stabilization of the hryvnia exchange rate, the outflow of currency from banks in the last four months of last year increased - $6.1 billion. At the same time, the volume of currency purchases by the population in December exceeded its sales and amounted to a record amount last year - $1.7 billion.

Alexander Pecheritsyn, head of the financial market analysis department at ING Bank Ukraine, explained the concentration of foreign currency outside the banking system by “the restoration of consumer demand, which stimulates 'gray' imports, especially at the end of the year - before the New Year holidays.” The president of the Ukrainian Analytical Center, Alexander Okhrimenko, agrees with him. “The peak of currency purchases is observed at the end of the year, followed by a slight lull until spring,” says the expert. “However, last year the seasonal factor was strengthened by the restoration of consumer demand, which explains such a sharp increase in currency purchases at the end of the year.” In addition, the head of the NBU, Vladimir Stelmakh, stated that by the end of the year the dollar exchange rate could exceed 8 UAH/$. “The surge is partly explained by the strengthening of devaluation sentiment,” adds Mr. Pecheritsyn.

The balance of payments surplus in 2010 amounted to $5.09 billion (in 2009, the deficit was $13.7 billion). The current account deficit (-$2.6 billion) was covered by a surplus in the financial account, in particular, thanks to IMF lending and a 22% increase in the influx of foreign direct investment (+$5.7 billion).

The volume of foreign currency in the hands of the population in 2011 may be even greater than last year, economists predict. “Given that most of this currency is bought not by the population, but by business for 'gray' schemes, such an increase in purchases means an increase in the share of the shadow economy in the country. Moreover, this factor can nullify the efforts of the National Bank and the government to improve the current account of the balance of payments "- says Vitaly Vavrishchuk, economist at BG Capital. Let us recall that the increase in foreign currency purchases by the population in October led to the formation of a balance of payments deficit of $578 million. “Increasing tax pressure gives reason to expect that the share of the shadow economy in the country will increase, as well as the need for cash currency,” added Mr. Okhrimenko.

However, experts doubt that the increase in foreign currency purchases by the population poses a threat to the balance of payments. “It is completely covered by the influx of capital through other channels, so we cannot yet say that the situation is threatening,” says Alexander Pecheritsyn. To strengthen control, Mr. Vavrischuk recommends tracking and publishing data on the purchase/sale of cash currency by banks. “Such data for each institution will allow the National Bank to make the situation more manageable,” he believes.

Yuri Panchenko

They take the dollar in their hands