Ukrainians fear the devaluation of the hryvnia. Banks have set a new record for bringing in cash dollars

Ukrainian banks have significantly increased the import of foreign currency cash into the country.

This information was reported by the National Bank of Ukraine (NBU).

In the first 8 months of 2024, the total volume of foreign currency imports increased by 1.8 times compared to the same period in 2023, reaching $9.9 billion. When compared to the pre-war period from January to August 2021, the import of banknotes surged 4.6 times, from $2.1 billion.

The last time Ukrainian banks imported more than the current $9.9 billion in an eight-month period was back in 2012 when they brought in $11.4 billion worth of U.S. dollars, euros, and other foreign currencies.

The majority of the foreign currency imported into Ukraine in the first 8 months of 2024 was U.S. dollars, accounting for 73.5% of the total volume. The euro came in second at 26.3%, followed by gold (0.1%), Polish zloty (0.09%), and the British pound sterling (0.05%). Precious metals are considered foreign exchange assets.

The growing influx of foreign currency cash is attributed to the increased devaluation concerns among Ukrainians, which, in turn, has led to a higher demand for U.S. dollars and euros among the population.

“This isn’t a secret; the increase in devaluation concerns among citizens has even been acknowledged in the official reports of the National Bank. These reports confirm that people are converting their hryvnia deposits into foreign currency upon maturity. While in the past, people were willing to leave at least some of their dollars/euros in their accounts, now they increasingly prefer to withdraw foreign currency in cash and take it out of the bank. Bank managers have stopped trying to persuade them to invest in hryvnia since people aren’t listening and are reminded of the hryvnia’s depreciation since the NBU abandoned the fixed exchange rate regime,” explained the deputy chairman of one of the major banks.

Since abandoning the fixed official exchange rate of 36.6 UAH/USD in October 2023, the NBU raised the dollar exchange rate to 41.17 UAH/USD as of September 30. Over nearly a year, the NBU’s exchange rate for the hryvnia has depreciated by 12.5%. Meanwhile, the average nominal yield on 12-month bank deposits currently stands at only 13.18% per annum, and the real yield (after deducting 19.5% in taxes, which includes 18% income tax and 1.5% military levy) is just 10.6%. This rate doesn’t even cover the current devaluation and may not cover future devaluation either. The Ukrainian authorities announced that the state budget for 2025 is based on an average annual exchange rate of 45 UAH/USD, which indicates a planned additional 9.3% depreciation of the hryvnia. Moreover, there are plans to increase the military levy from 1.5% to 5%, as the Verkhovna Rada passed the corresponding amendments in the first reading of bill No. 11416-d. This means that the real interest rates (after taxes) on hryvnia deposits could drop from the current 10.6% to 10.1%.

Bankers predict an increase in the import of foreign currency cash into Ukraine in the coming months, noting that people are rapidly purchasing the available cash supplies, depleting the market of dollars and euros. This trend is supported by official NBU reports, which provide the following volumes of cash foreign currency sales to individuals:

• 8 months of 2024: $16.2 billion (compared to $9.9 billion imported);
• 8 months of 2023: $11.9 billion ($5.5 billion imported);
• 8 months of 2022: $6.6 billion ($3.3 billion imported);
• 8 months of 2021: $12.3 billion (with $2.1 billion imported).

This data indicates that in 2024, cash purchases by the population increased by 36% compared to 2023.