Last week the Ukrainian hryvnia marked its 13th birthday. Certainly, this anniversary isn’t very significant compared to other world currencies (the U.S. dollar, for instance, is over 100 years old). By human standards, 13 years is a teen period when physiological transformations are under way, the personality type is being formed and the individual habits are changing. So, what was the process of establishment of the Ukrainian national currency like? What are the lessons to be learned? How can the hryvnia be consolidated? The Day asked experts in the field to answer these and other questions.
Let us first turn to history. According to one of the historical versions, the word hryvnia dates back to the times of Kyivan Rus’. It is derived from the name of an ancient kind of ornament worn around the neck, which was made of gold and silver and shaped like a big ring. Later the word came to be used to denote a certain amount (weight) of a precious metal (a hryvnia of silver is a monetary-weight unit). Since this very amount of silver might have comprised a certain number of identical coins, they came to be counted by apiece. The hryvnia comprising a certain number of coins was called hryvnia of kunas (monetary-countable unit).
According to the National Bank of Ukraine, in various historical periods the word hryvnia might have also designated a copper coin worth 2,5 kopecks and later 3 kopecks. The popular name ‘hryvenyk’ stuck to a silver 10-copeck coin. The same tradition continued well into the Soviet times.
After the Third Universal was proclaimed on July 18, 1917, the Ukrainian People’s Republic (UNR) was created. After that the country introduced its new national currency. It was the Ukrainian karbovanets’. But no sooner had it been put into circulation than counterfeit bills appeared. Because of this and due to the declaration of the Fourth Universal on Jan. 22, 1918, which proclaimed the UNR to be an independent state in its own right, the Central Rada of Ukraine passed a bill on March 1, 1918, introducing a new currency, the hryvnia, which was equal too 100 shahs and 0.5 karbovanets’.
Throughout 1918 in Berlin, Germany, hryvnia bills with face values of 2, 10, 100, 500, 1,000, and 2,000 were printed. The first bill, adorned with quite a simple geometrical ornament, was designed by Vasyl’ Krychevsky and the next three — by Heorhii Narbut. Narbut’s designs were characterized by a certain degree of sophistication. For instance, the design of the 10-hryvnia bill incorporated patterns inspired by the 17th-century Ukrainian book prints. The 100-hryvnia bill was decorated with the figures of a worker holding a hammer and a peasant woman with a sickle against a background of lush flowers and fruit.
After Hetman Pavlo Skoropadsky came to power in Ukraine in April 1918, the karbovanets’ resumed its role of the main national currency, according to the NBU’s site. When in December that year the state power was seized by the Directory headed by Volodymyr Vynnychenko and Symon Petliura, the hryvnia was again declared the main currency of the renewed Ukrainian People’s Republic.
Later, after the monetary reform of 1922–24, a new currency came into being in Soviet Ukraine — the Soviet chervinets. In 1924 the state fixed the exchange rate of the new Soviet ruble at 0.01 chervonets. This was the starting point for the establishment of the new Soviet currency.
It was not until after the Declaration of Independence of Ukraine was proclaimed that Ukraine received an opportunity to create a properly Ukrainian national currency. Taking the age-long traditions into account, it had to be the hryvnia. Scholars suggested various names for the small change, such as sotyi and rezana, but eventually kopiika was given preference.
According to the NBU data, the first printed samples of hryvnia bills were made in Canada back in 1992. However, the Ukrainian leadership decided to postpone the introduction of the hryvnia and instead introduced a temporary currency for the transition period. It was the Ukrainian karbovanets’ or the coupon-karbovanets’, and it was to take the worst blow of the 1992–95 inflation.
When in 1995 and in the first half of 1996 the inflation abated and the first signs of positive tendencies towards a more stable economy appeared, the talk about introducing the hryvnia resumed again. On Aug. 25, 1996, President Leonid Kuchma issued the Decree “On monetary reform in Ukraine.” The actual reform was implemented on the basis of this decree on Sept. 2–16, 1996. Since Sept. 16, 1996, all payments in Ukraine have only been made in hryvnias.
“There have been ups and downs, positive and negative dynamics in the development of the hryvnia,” says Oleksandr Zholud’, economist for the International Center of Prospective Research. “But on the whole, these 13 years turned out quite okay.”
“The introduction of the hryvnia was, and still is, of major importance for the country, as it is an integral part of our economic and financial independence. But the stability, paying capacity, and soundness of the hryvnia are some of the constituent parts of efficiency and competitiveness of Ukraine’s economy as a whole. The problems facing the hryvnia today result from the unbalanced actions of Ukraine’s leaders.
“This anniversary is the best time to realize that when it comes to the financial and economic safety of the country and the competitiveness of its economy, all political forces, regardless of the current political situation, should unite their efforts to make the currency stronger. It is the only way to secure the grounds for further growth of the economy and the nation’s well-being,” says ex-Minister of Economics Anatolii Kinakh in his comment for The Day.
Meanwhile, Mykola Ivchenko, Director of Forex Club Information-Analytical Center, gives the hryvnia the top grade for its ability to bear both internal and external pressures. “As a currency, it has lasted through all the tests starting with 1996 and finishing with the present crisis. The only negative moment is its being one of the world’s most devaluated currencies against the U. S. dollar during the crisis. Still, this is the evidence not so much of its weakness as of the large dependence of Ukraine’s economy on exports and the influx of international capital. At the same time, according to our forecasts, in 12 to 18 months the hryvnia will bounce back. It is quite probable that in the next two or three years it may regain 20 to 30 percent of its lost grounds.” Such is Ivchenko’s optimistic projection for the hryvnia.
However, not all economists believe these 13 years have been totally positive. “In the meantime, the country has seen several stages in the development of its currency and its falls and rises. At first, in the 1990s, everyone hoped to see a stable, convertible hard currency. But the idea flopped. Now we witness the second slump of the hryvnia. Sadly enough, in the intervening 13 years our state has not strengthened its position in the financial sphere and made the citizens rely upon other currencies, like the U. S. dollars or euros,” said Volodymyr Lanovy, President of the Center for Market Reforms.
This is no wonder, because a stable and hard currency cannot spring up at one’s wish, said Zholud’. In his opinion, the extent of the present currency fluctuations should not be exaggerated. “Let’s have a look at the euro, which is not much younger than the hryvnia. Its cost varied from 0.35 to 1.60 U.S. dollars. That is, the fluctuations have been considerable. But it does not mean that the EU is not working properly. Currency rate fluctuations are a normal process. It is more important to focus attention on the other constituents of the hryvnia’s operation, in particular, price stability on the domestic market,” he summed up.
This opinion coincides with that of Yurii Ruban, Director of the National Institute for Strategic Research. He adduced the example of the French franc, which saw even worse falls than the hryvnia. The Soviet currency, too, had its problems. “Ask your parents — they must remember the monetary reform and the devaluation of the Soviet money. Now the hryvnia has got a bunch of ‘children diseases.’ Of course, everyone would like it to be stronger, dominate the currency market in this country, and have no competition here. Everyone wants it to be not only a means of payment, but also that of accumulation. But the hryvnia exists in a real economy and not on its own.”
The expert sees the way to a strong and stable national currency in methodical implementation of structural reforms. Looking for scapegoats or waiting for magic incantations to come from the National Bank will not of much use. The state should decrease the proportion of exports in the structure of the economy, raise labor productivity, and expand the consumption of domestic products on our market.
Conversely, Vasyl Yurchyshyn, Director for Economic Programs at the Razumkov Center, emphasized that the reason for these problems does not lie in Ukraine’s economy alone. “Nowadays the hryvnia again becomes hostage to the politics. It is being used for securing additional profit — and that at both your and my expense,” he said.
“The hryvnia is the mirror of Ukrainian politics,” joined in Oleksandr Paskhaver, President of the Center for Economic Development. This is why he suggested just looking in this mirror in order to remember the times when the national currency was more stable and make the right choice while voting for this or that political party in the election.
In his turn, Ihor Burakovsky, Director of the Institute for Economic Research, noted that despite all the problems, the arrival of the hryvnia economically signified that the process of building of the independent state was now completed. The establishment of the national currency was really dramatic at times. But, judging by various international standards, today one can say with confidence: we essentially have a hard currency, with certain exceptions.
Although hryvnia cannot claim to be one of the world’s hard currencies, it still looks not that bad compared to some of its “peers.” “Among the rest of the CIS countries, with the exception of the Baltic States, our currency policy is much more liberal and well-developed. Ukraine is gradually reaching the standards accepted in Russia. And the Russian currency standards are roughly the same as in Eastern Europe. That is to say, the Ukrainian hryvnia is maturing. Another good point is that our country has made much more progress in this respect than Belarus, Azerbaijan, Turkmenistan, Tajikistan, or Uzbekistan,” says Ivchenko.
On the whole, one can say that the hryvnia is going through all the successive stages in the process of development of an independent national currency. “Still, it is not worth speaking of its establishment as a full-fledged currency before it starts functioning as long-term (investment) money,’”says Yaroslav Zhalilo, President of the Center for Anti-Crisis Research.
Valerii Pustovoitenko, ex-Prime Minister of Ukraine, says that we should be more optimistic and proud of our national currency. “All citizens should preserve, guard and, moreover, trust it. Let us not forget that the hryvnia is one of the attributes of our state. So nowadays the main task for the National Bank, President of Ukraine, and each of us is to do our best to preserve it and secure its flourishing.’
