During April and May, the Ukrainian foreign exchange market situation showed signs of improvement. This was facilitated by measures taken by the National Bank of Ukraine (hereinafter – the National Bank), and the launch of a program supported by a Stand-By Arrangement (SBA) approved by the IMF.

However, ongoing social and political tensions create certain risks and uncertainty over how the situation will develop. This prompts the National Bank to take additional stabilization measures. 

In view of the above, on May 12, 2014, the Board of the National Bank passed Resolution No. 270 “On Changing the Settlement Period under Export and Import Transactions and the Imposition of Mandatory Sale of Foreign Exchange Proceeds from Exports” registered by Ukraine’s Ministry of Justice on May 14, 2014, as No. 496/25273, which, inter alia, envisages the following:

the shortening of the period for performing payments under the export and import transactions from 180 to 90 days;

the imposition of a mandatory requirement to sell the foreign exchange in the interbank foreign exchange market. Mandatory sale applies to:

proceeds in foreign currency from overseas obtained by legal entities other than authorized banks, sole proprietors, foreign missions (except for diplomatic missions and consular offices) and credited to the accounts opened with the authorized banks to engage in joint activities without establishing a legal entity, as well as foreign exchange proceeds credited to residents' accounts opened outside Ukraine on the basis of individual licenses granted by the National Bank of Ukraine;

proceeds in foreign currency received by individuals from abroad in an amount equal to or exceeding UAH 150,000 per month. Foreign currency proceeds coming from outside Ukraine that have been erroneously transferred and refunded to individuals (residents and non-residents) are not subject to mandatory sale.

Mandatory sale is applicable to proceeds in foreign currency included in the first group of the foreign currency and banking metal classification and Russian roubles.

Imposed as a temporary measure, the above-mentioned requirement is due to take effect from 20 May and will remain in force until 20 August 2014.

Pursuant to NBU Board Resolution No. 271, dated May 12, 2014, “On Establishment of the Amount of Foreign Exchange Earnings subject to the Mandatory Sale”, 50% of export proceeds in foreign currency obtained by residents from the sale of goods under foreign economic contracts are subject to mandatory sale.

Commenting on the resolutions passed by the National Bank of Ukraine Board, Director of General Department of Monetary Policy Olena Shcherbakova has pointed out that the efficiency of the instruments that have been effective over the past 18 months is undoubted.

“In light of the tense geopolitical situation and turbulent external conditions, it is logical that the National Bank has resorted to such instruments as mandatory sale of the portion of export proceeds in foreign currency and the shortening of the settlement period under the export and import transactions. Envisioned as temporary measures, they will help ensure smooth inflows of foreign exchange into the foreign exchange market of Ukraine and take some pressure off the exchange rate of the hryvnia, thus, restoring the overall equilibrium in the Ukrainian money market,” she said.

According to Ms Olena Shcherbakova, in April 2014, the supply of foreign exchange had surpassed the demand for foreign exchange in both segments of the foreign exchange market. In April, in particular, the net supply of foreign exchange in the cashless segment of the foreign exchange market amounted to USD 171.6 million, whereas that in the cash segment of the foreign exchange market reached USD 258.8 million. However, starting from mid-February 2014, the National Bank has not intervened in the market by selling foreign exchange. In April, the regulator carried out no interventions in the foreign exchange market.

She also drew attention to the fact that the central bank had shortened to 3 months the period during which the above-mentioned measures would remain in effect. The measures that had previously been imposed by the regulator remained in effect for 6 months, the maximum possible validity period prescribed by law. The shortening of the period during which these measures remain in effect can be attributed to better market expectations in the context of the resumption of co-operation with international financial institutions.

Approved by NBU Board Resolution No. 34, dated February 4, 1998, (as amended by NBU Board Resolution No. 378, dated October 2, 2002, and registered by Ukraine’s Ministry of Justice on October 24, 2002, as No. 841/7129) (as amended from time to time).