Anticipating devaluation: Ukrainians in December bought a record amount of foreign currency

The devaluation sentiments among Ukrainians have significantly intensified, as confirmed by the latest official report from the National Bank of Ukraine.

The regulator reported a 1.6-fold increase in net purchase of foreign currency by the population (the difference between buying and selling) from $0.62 billion in November to $1.026 billion in December 2023. This encompasses both cash and non-cash purchases by individuals.

This figure is 2.2 times greater than December 2022 ($0.46 billion) and 5 times higher than December 2021 ($0.2 billion). The monthly net purchase by citizens of $1.026 billion is not only the highest since the onset of the full-scale war but also exceeds figures from over 11 years ago. The National Bank of Ukraine recorded a larger volume of citizens’ currency purchases, amounting to $1.52 billion, way back in November 2012.

“People have repeatedly heard governmental forecasts for 2024 at the level of 40-41 UAH/USD, while analysts’ estimations even reach 45 UAH/USD if Western partners delay or reduce aid to Ukraine. Everyone understands that Ukrainian authorities will be forced to devalue the national currency to receive more hryvnias with less external financing, to meet budget targets. Therefore, nobody wants to lose their savings, as it happened at the beginning of the full-scale invasion, when the official rate was first set at 29.25 UAH/USD and then devalued to 36.6 UAH/USD. At that time, people immediately lost 25% of their hryvnia savings, but they didn’t protest much — everyone was shocked by the first months of the war, primarily concerned about safety. Now, many have come to their senses and are doing everything to preserve their savings — hence, we see some hryvnia depositors converting them into dollars after the deposit terms expire. Not everyone does it yet, but the movement is becoming more widespread,” said the chairman of the mid-sized bank’s board to journalists.

There is also an increasing demand for cash dollars, evidenced by the rise in its exchange rate. While the black market closed 2023 with a selling rate of 38.91 UAH/USD and a buying rate of 37.5 UAH/USD on December 31, by January 1, it was selling at 39.16 UAH/USD, and on January 2-3, it ranged between 39.13-39.18 UAH/USD.

After concluding 2023 at 38.15 UAH/USD on the interbank market (with a market volume of $186.6 million), the National Bank is currently maintaining this rate. On the first working day of 2024, trading was quite inactive, and the regulator might have sold a bit of the dollar, conserving foreign reserves. However, the market is gradually becoming more active: on January 1, the non-cash market closed at 37.98 UAH/USD (with Bloomberg trade volume of $84.2 million), January 2 — 38.13 UAH/USD ($221.3 million), January 3 — 38.05 UAH/USD ($184.5 million). Although throughout the day, quotes today reached 38.15-38.20 UAH/USD.