Nobody Exchanging Ukrainian Hryvnia in Croatia, Duty to Fall on HPB?

Lauren Simmonds

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As Poslovni Dnevnik/Ana Blaskovic writes, around 9,000 Ukrainian refugees who have arrived in Croatia and took some cash with them in a panicked flight before the war have nowhere to officially change it.

In Croatia, the Ukrainian hryvnia isn’t being exchanged by banks or by exchange offices, the Croatian National Bank (CNB) confirmed recently. A decision is being made which would see Hrvatska postanska banka take over, but no agreement has been reached yet.

“Regarding the elimination of the problem regarding the purchase of the Ukrainian hryvnia currency, we would like to inform you that the possibility of taking over the purchase of the Ukrainian hryvnia by Hrvatska postanska banka is being considered,” said the CNB, which expects a solution soon.

Nobody wants to take the risk

The problem with the purchase of the Ukrainian hryvnia is essentially its non-convertibility, the fear of money changers and bankers that they will have no one to sell it to, at least not without major losses involved. An exchange office which didn’t want to be named confirmed that this situation is very real. It does have the Ukrainian hryvnia on its exchange rate list, but it no longer de facto buys it back because the set exchange rate was set deliberately very unfavourably.

“Basically, the Ukrainian hryvnia can be changed, but the exchange rate is set very low, so it doesn’t pay off for anyone to do so. The Ukrainian hryvnia is only formally listed because we can’t remove it from the list. The bank we work with has completely removed it from its exchange rate list. Nobody wants to risk a pile of banknotes because it isn’t known what will happen to that currency,” said an employee of the exchange office in question.

The issue of the value of the Ukrainian hryvnia is a thorn in the side of not only Croatian banks and exchange offices, but also other European countries to which refugees from Ukraine are arriving. The European Commission (EC) and the European Central Bank (ECB) are both seeking a quick solution to establish a mechanism to enable the conversion of a limited amount at a given exchange rate to limit possible abuse or exploitation of the situation.

On paper it all seems simple, but in practice, the scheme carries great complications as it requires members to guarantee that financial institutions will cover any losses.

According to the FT, members are willing to provide the necessary political guarantees, estimated at one billion to three billion euros, provided the amount is limited to 300 euros per refugee. More than 3.5 million Ukrainians have fled their homeland following Russia’s invasion. One of the burning problems they face is the lack of cash to pay for food, clothing, accommodation and other necessities. The Ukrainian hryvnia they took with them can’t be exchanged for the euro or other currencies owing to the aforementioned reasons.

In Poland, which has received 2.1 million Ukrainian refugees to date, one Polish zloty could be bought for seven Ukrainian hryvnias before the war, and today 20 hryvnias are demanded for the same amount. Back on February the 23rd, the Ukrainian hryvnia was worth 0.03 euros.

The actual value is unknown…

The reluctance of banks and exchange offices to buy the Ukrainian hryvnia arose because its true value is unknown after Ukraine halted the majority of transactions, froze the official exchange rate at pre-war levels and imposed a moratorium on foreign exchange transactions (except for war-related payments).

The ECB’s proposal to the EC provides a European guarantee for the initiation of exchange rate losses to the central bank in which large quantities of Ukrainian currency would end up, at least until the end of the war. In Frankfurt, they concluded that without a guarantee (necessary from the members because it isn’t currently provided for in the existing EU budget), they cannot change the Ukrainian hryvnia for euros, since that would be monetary financing which is prohibited by the EU Treaty.

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