- Analytic

Ukraine “eats” currency reserves for the third month in a row: where did the money go?

Ukraine’s international (gold and foreign exchange) reserves for June 2024 decreased by 2.9%, from 39 to 37.9 billion dollars. The fall continues for the third month in a row after reaching a historical record of 43.76 billion in March. At the same time, the rate of decrease in reserves has slowed down: for comparison, in May, ZVR “lost weight” by 7.9%. This is evidenced by the data of the National Bank of Ukraine (NBU).

As the regulator explained, the fall occurred for two main reasons. Yes, the currency was spent on:

currency interventions by the NBU to cover the structural currency deficit (due to import and export imbalances) and smooth out exchange rate fluctuations;
debt payments of Ukraine in foreign currency

However, the former head of the NBU Council, Bohdan Danylyshyn, believes that the policy of the National Bank leads to the waste of currency reserves. According to him, currency liberalization and a flexible exchange rate were “not quite justified by the NBU”. He also expressed the opinion that liberalization and a flexible exchange rate “shake up the currency market”. Emphasizing:

  • in June, the NBU sells 160 million dollars each day;
  • in May it was 135 million dollars;
  • in April – 100 million dollars.

“Once upon a time, IMF tranches were measured in the amount of 200 million dollars. Now the NBU spends 160 million dollars every day, and for that ‘the world applauds us’, as they say in the NBU”, – the former head of the Council of the National Bank explained the reason for his criticism.

Foreign exchange reserve of Ukraine in June 2024: what affected the volume

Foreign currency receipts to the government’s accounts at the NBU for the month amounted to 2.43 billion dollars. At the same time, Ukraine spent 444.5 million dollars on debt service, in addition, another 247.6 million dollars. was paid to the International Monetary Fund (IMF).
NBU operations on the interbank. The National Bank sold 2.99 billion, and bought only 0.9 million dollars. The net sale of currency amounted to more than 2.9 billion dollars. The indicator is high, but 2.7% lower than it was in May.
Exchange rate. The estimate of the value of financial instruments increased by USD 111.9 million.

Why do we need military aid and why is Ukraine accumulating it?

The country’s gold and currency reserves are used for international settlements and payments (including the national debt) and covering the balance of payments deficit. In addition, they are needed to stabilize the exchange rate of the national currency – so that, if necessary, the National Bank can sell foreign currency on the interbank market and thus compensate for its deficit. At the same time, in the event of a surplus of foreign currency on the market, the regulator can buy it to replenish reserves.

In Ukraine, ZVR consists of securities, deposits, cash and funds on correspondent accounts, as well as monetary gold. Gold occupies the smallest share in reserves – on July 1 it is 5.3%. Securities account for 77.8% of the total volume of foreign currency deposits, and the remaining 16.9% are “live” money.