“The national currency is the backbone of the stable monetary system. Therefore, Ukraine proclaimed its natural desire to have its own currency as an integral attribute of its independence in the Declaration of State Sovereignty of Ukraine adopted in July 1990. A month later, the desire to establish its own currency was set forth in the Law of Ukraine "On Economic Independence of Ukraine," recalled Ms. Vira Rychakivska, Deputy Governor of the National Bank of Ukraine.
After the Act of Declaration of Independenceof Ukraine was approved by the Verkhovna Rada in 1991, the Presidium of the Verkhovna Rada of Ukraine adopted Resolution “On Approval of Names and Security Features of the Monetary Unit of Ukraine” (10 December 1991) and “On the Small Coin of Ukraine” (2 March 1992), which determined the hryvnia as the monetary unit of Ukraine, with its hundredth fraction being kopiyka.
“The name of a new currency was not chosen at random. Ukraine has old and well-established traditions dating back to the Kievan Rus when our ancestors created the first monetary system based on the main unit called “hryvnia”, which was made of gold or silver and served as a medium of exchange. The paper money – hryvnias – was put into circulation for the second time on 17 October 1918. Thus, modern hryvnia is descended from a noble family, being one of the oldest currencies in the world,” noted Ms. Vira Rychakivska.
According to her, the national currency was introduced in several stages. At first, a temporary national currency – the Ukrainian karbovanets (reusable coupons) – was put into circulation in January 1992. At the same time, the ruble – the monetary unit of the former USSR – was used in cashless settlements between enterprises. In November 1992, Ukraine ceased the circulation of USSR rubles and the Ukrainian karbovanets became the only legal tender in cash and cashless circulation. As a result, Ukraine left the ruble zone and created the legal basis for the establishment of the national monetary system.
The Ukrainian coupon-karbovanets (despite its temporary status) gradually developed all the features of a typical monetary unit. However, it inherited all the economic problems of the transition period: an increase in the budget deficit, hyperinflation, and devaluation of the national currency.
“Concurrently, next steps in implementing the monetary reform were widely canvassed in Ukraine as this reform was to become part of the overall economic reform rather than a monetary act, a key driver of the transformation to a market economy,” said the Deputy Governor of the National Bank of Ukraine.
Ms. Vira Rychakivska has added that in preparation for the monetary reform tremendous efforts were made to produce new banknotes and small coins.
“We had to start from scratch: Ukraine had neither manufacturing facilities to produce banknote paper nor equipment to print banknotes and mint coins. At the initial stage, it was decided to produce hryvnia and small coins abroad. The first specimen of hryvnia was manufactured in Canada by the Canadian Bank Note Company, whereas a small coin was minted at the Luhansk Machine-Tool Plant and the Italian Mint. The banknotes of 50 and 100 hryvnia denominations were made in Malta by the banknote producing company “Thomas De La Rue” (Great Britain). The Ukrainian banknotes were designed by famous Ukrainian graphic artists Vasyl Lopata and Borys Maksymov,” she said.
The modern history of the Ukrainian hryvnia began with the creation of unique manufacturing facilities – the Banknote Printing and Minting Works and Banknote Paper Mill located in the town of Malyn. The Banknote Printing Factory was put into operation in March 1994. The Banknote Paper Mill was put into operation in April 1997. The Mint of the National Bank of Ukraine was upgraded and put into operation in April 1998.
The implementation of policy aimed at stabilizing the macroeconomic situation in Ukraine during the period 1995 – the first half of 1996 created the necessary conditions for carrying out the monetary reform in September 1996 and introducing the hryvnia. On 25 August 1996, the President of Ukraine signed the Decree “On the Monetary Reform in Ukraine” to put into circulation a new monetary unit – hryvnia and small coin – on 2 September 1996 and cease the issuance of the Ukrainian Karbovanets in order to facilitate radical market reforms in Ukraine, to provide Ukraine's economy with a stable national currency, and in pursuance of Articles 99 and 102 of the Constitution of Ukraine. The hryvnia and Ukrainian karbovanets were both in circulation from 2 September until 16 September 1996, with the karbovanets being gradually withdrawn.
“The main tasks of the monetary reform were to replace the provisional monetary unit – Ukrainian Karbovanets by a full-fledged national currency – hryvnia, change the measure of prices, put cash circulation in place, address disastrous social and economic repercussions of currency depreciation, create a stable monetary system, and turn money into a key driver of economic and social development of the country,” said Ms. Vira Rychakivska.
As of 2 September 1996, the National Bank of Ukraine issued into circulation 338.1 trillion karbovanets, 19.1 trillion karbovanets whereof remaining in the bank pay desks. 319 trillion karbovanets were in circulation outside banks. In the course of reform, the banking system withdrew 97% of karbovanets issued before the reform was launched (327.9 trillion karbovanets). During this period the National Bank of Ukraine issued into circulation the hryvnia banknotes worth UAH 3.1 billion. As of 1 August 2012, the cash worth UAH 219.5 billion was in circulation, including banknotes worth 217.9 billion (2.6 billion pieces). In January-July 2012, the cash worth UAH 778.3 billion came to the bank pay desks, with the total number of banknotes and coins per capita standing at 56 and 215 pieces respectively.
“The period of time that has passed since the introduction of the national currency was marked by complicated economic processes aimed at maintaining financial stability, ensuring the intrinsic stability of hryvnia and reinforcing the positive results achieved by the implementation of the monetary reform. However, the hryvnia has managed to hold its position. The National Bank of Ukraine makes continuous efforts to improve the design and security features of hryvnia banknotes,” said the Deputy Governor of the National Bank of Ukraine.
According to Ms. Vira Rychakivska, the banknotes of the third generation of 2003-2007 issues are currently in circulation. The hryvnia banknotes are traditionally required to meet high standards with respect to security. For example, the hryvnia banknotes (of medium and high denominations) have optically variable images intended for visual control of authenticity of banknotes that cannot be successfully reproduced by photocopying or scanning. Similar security features have been incorporated into the euro banknotes, US dollars (latest series) and Russian rubles,” she noted.
The rate of counterfeiting of hryvnia banknotes is among the lowest in the world. In 2011, the rate of counterfeiting of hryvnia banknotes is estimated to be 3.4 counterfeits per 1 million pieces of authentic hryvnia banknotes. According to data released by the European Central Bank, in 2011 there were 46 counterfeits per 1 million genuine euro banknotes (in 2010 – 55 counterfeits, in 2009 – 67 counterfeits).
This year, the share of cash in the money supply accounted for 27.9% for the first time in the last 10 years, which was the lowest figure recorded over the last decade. This indicator used to make up 34 – 32%. As of 1 August 2012, the money supply totaled UAH 721 billion, with the cash accounting for only one-third of the money supply. This is viewed as a positive trend. Furthermore, as of 1 April 2012 the growth rate of cash in circulation slowed down to 2.2%, as compared with the corresponding period of the previous year.
“Given the time that has passed since the completion of the monetary reform, we feel confident that the reform proved to be a turning point for Ukraine. Since then significant progress has been made in achieving financial stability, speeding up settlements and attracting cash into the banking system, as well as maintaining economic stability,” concluded Ms. Vira Rychakivska.