The European Union is working to make its nine currencies available to the more than 3.5 million Ukrainian refugees now in the bloc, some of whom can’t pay for basic necessities because many EU banks aren’t converting their national currency, the hryvnia, into local currency.
European officials believe a substantial proportion of Ukrainians are arriving in the EU with hryvnia cash and without access to credit cards to pay for vital goods.
The EU has opened its doors for up to two years to Ukrainians fleeing the war, promising them the right to work and the provision of basic medical and educational services, as well as targeted economic support. Refugees arriving with bundles of Ukrainian currency that they can’t use present a more immediate challenge.
Ukraine’s central bank has introduced a range of capital controls to prevent a sharp depreciation of its currency and to protect its currency reserves. Many EU banks don’t want hryvnia because they are worried about exchange-rate risks associated with it.
The EU has been negotiating possible solutions for several weeks. Discussions with the European Central Bank eventually went nowhere because the ECB would have needed some form of guarantee from the European Commission, the EU’s executive body, to compensate for currency or other financial risks. The ECB oversees the euro, the common currency used by 19 of the EU’s 27 members.
Most Ukrainians are arriving in EU countries that don’t use the euro, such as Poland, Hungary and Romania.
Instead of relying on EU guarantees, Ukraine has accepted that its central bank will absorb currency risks.
Under a system unveiled Friday, a Ukrainian refugee would be entitled to swap up to 10,000 hryvnias, slightly over €300, equivalent to $332, for an EU local currency at a fixed exchange rate with no added charges. The local bank could then pass the Ukrainian currency onto its national bank at the same fixed exchange rate, receiving in return the same value of the local currency they had handed out.
The central bank would then have up to three months to transfer that Ukrainian currency to Ukraine’s central bank and get in return, based on the same fixed exchange rate that the Ukrainian refugee originally received, its local currency.
European officials said that while Ukraine’s central bank would face some currency risk, authorities in Kyiv have said that if the limit is set at 10,000 hryvnia, it has sufficient foreign-exchange reserves to comfortably absorb any losses from the depreciation of the Ukrainian currency. That would only start to change if twice the number of refugees came to the EU and sought to use the system.
It will be up to national authorities to decide precisely how to organize the system as long as it respects these basic guidelines.
Officials said that a similar system set up last week in Poland, where some two million Ukrainian refugees have arrived, has so far received only modest demand and they are watching closely to see if the number of refugees seeking the assistance rises sharply. They said there was some evidence that the more recent arrivals from Ukraine are relying increasingly on credit cards for their basic needs.
Write to Laurence Norman at email@example.com
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