Following yesterday’s admission by the new head of Ukraine’s central bank of the considerable bank runs in recent days and the rapid dwindling of central bank reserves, Sergiy Kruglik – the director of international affairs for the bank – announced this morning that Ukraine has adandoned the dollar peg and will adopt a flexible exchange rate. The Hyrvnia collapsed through 10.00 on the news and is now trading 10.40 at record lows against the USD.
As The Economist notes, on February 7th the National Bank of Ukraine (NBU, the central bank) finally devalued the official rate of the hryvnya, to HRN8.7:US$1.
The policy was then to set the peg to the dollar roughly in line with trading on the interbank exchange. At the same time, the authorities introduced more foreign-exchange controls.
This has now changed and the currency is in free-fall. One cannot but think this is a desperate attempt to force the hands of a bailer-out to move before total chaos ensues (and of course, as the UAH plummets so import costs of energy will soar).