10 Year Low for Ukrainian Currency
By Angela Sanders Tuesday, March 11 2014 @ 03:08 AM EDT
In the last few days, the Ukrainian currency – the Hryvnia – has fallen to an all new low of ten to the United States dollar. Coming largely as a result of recent political upheavals and ongoing economic issues that date back some time, the currency's decline will only add to its country's need for international financial assistance. At this point, most of the pressure to help seems to be on the West and the International Monetary Fund, with Russia looking highly unlikely to offer any direct aid. Even prior to the recent political upheavals in the country, Ukraine's economic standing was dire. Shockingly, the economy is in fact even smaller than it was in 1992, in the early years of the post-Soviet period.
The Hryvia – A Falling Currency
Unfortunately, the political crisis in the Ukraine has only aggravated the country's already long-existing problems, one of which is the low value of their currency. Not only that, but the fall has been a sharp one as well, dropping nearly 20% in February alone. The central bank has been doing its best to temper the decline though, using its foreign exchange reserves to purchase Hryvnia. This may have slowed the loss of the currency's value to some extent, but they do run the risk of depleting those reserved down to dangerously low levels. As a general rule of thumb, there is a theory in economics which states that, in order to be financially stable; a country must have enough financial reserves to pay for three months’ worth of imports. But a consultancy in London – Capital Economics – believes that Ukraine may be down to less than two months' worth, which sadly will only encourage investors to pull their money from Ukraine as soon as possible. In very specific circumstances, a currency slide can be a positive thing, as it helps to enhance competition within local industry. In this situation though, there is a very real danger that Ukraine's currency is falling far too quickly to do anything other than severe economic damage to a country that is already facing political and social upheaval.
Heading n Stuff
To make matters worse, Ukraine already has a huge amount of debt, an estimated $66 billion according to Capital Economics – a sum that is set to mature again this year. The London consultancy also anticipate that the current Ukrainian government will require a further $9 billion or more this year, just to stem the decline of the Hryvnia. Sadly, Russia seems to be making no attempts to come to Ukraine's aid in this affair, with ominous comments from Russian officials suggesting that they won't either. All in all, the rapid decline in the value of the Hryvnia simply reflects the long-existing fact that the country cannot survive without external assistance. No doubt many investors will be keeping a close eye on the state of the Hryvnia through Currencies Direct.