At the public session of the Board of the National Bank of Ukraine, which took place on 15 November 2011, Olena Shcherbakova, Director of the General Department of Monetary Policy, NBU Board Member, delivered a keynote statement on the new aspects of the National Bank of Ukraine’s activities, which are being implemented with a view to ensuing stability of the monetary unit of Ukraine.
"The latest financial and economic crisis has proved that the capability of traditional monetary mechanisms and instruments is far from being sufficient to give an adequate response to new challenges. Under such conditions, the central banks of many countries are constantly searching for new regulatory arrangements and instruments, which would take account of the market conditions in this or that country. The National Bank of Ukraine is not an exception in this respect,” Olena Shcherbakova said.
The Director of the General Department of Monetary Policy pointed out that, historically, a characteristic feature of the Ukrainian money market is high cash level outside banks. It partly results from the large size of shadow economy. To some extent, it could be a reflection of the fact that a large share of the household savings is kept outside banking institutions.
As of today, in Ukraine the share of cash outside in the money supply stands at 28%, whereas this indicator in most Eastern European countries ranges from 12% to15%, in advanced countries it is lower than10%.
The large share cash outside banks in the money supply undermines efficiency of the banking system performance aimed at supporting economic growth as the capacity of the banking system to create money declines. Apart from that, the central bank’s capacity to conduct efficient regulation of the money market deteriorates. All the traditional monetary instruments and mechanisms are aimed at regulating the amount of banks’ liquidity, or cashless money in circulation.
"It should be taken into account that the cash component of the money supply tends to demonstrate the most unpredictable behavior when shocks arise and its uncontrolled flow is capable of complicating the situation and is likely to lead to undesirable consequences. The National Bank of Ukraine is constantly making efforts to encourage cashless transactions, both settlement ones and those that are related to savings. In addition to this, we are aware of the fact that administrative measures and bans cannot be efficient – only market approaches prove to be successful,” stressed Olena Shcherbakova.
For this reason, the National Bank of Ukraine intends to introduce a new instrument – own certificate of deposit for natural persons. The draft of Regulation has already been elaborated by the General Department of Monetary Policy. Its aim is to raise temporarily free household cash funds, thereby reducing the volume of cash outside banks. Coupled with other NBU measures, the above-mentioned will help reduce pressure on the cash hryvnia exchange rate, inflation developments and ensure stability of the monetary unit of Ukraine.
The National Bank of Ukraine plans to issue certificates of deposit for natural persons on its own behalf and in documentary form. These instruments will be issued in the domestic currency, their value being a variable, which will be indexed based on the official rate for banking metal – gold, silver, platinum, palladium, which will be set forth in the terms of issuance.
Given the fact that holders of these certificates will earn interest income, such an instrument will become an attractive complement to the existing alternatives for investing household free funds. In addition to this, these certificates can be used as collateral if a certificate holder needs to obtain a loan.
The NBU certificates of deposit will be sold and redeemed as well as interest will be paid thereon through the regional department of the National Bank of Ukraine. These instruments will be allocated for different terms.
The certificates of deposit will be issued by the National Bank of Ukraine in volumes required to balance the money market. The decision on allocation, terms of allocation and registration of the issue of NBU certificates of deposit will be taken by the Board of the National Bank of Ukraine depending on the money market conditions.
The information concerning the issuance and allocation of the NBU certificates of deposit will be posted on the official website of the National Bank of Ukraine, on the boards of the NBU regional departments and disseminated by mass media.
"The implementation of the NBU certificates, coupled with other measures taken by the National Bank of Ukraine, will help to maintain equilibrium in the money market and ensure price stability,” said Director of the General Department of Monetary Policy Olena Shcherbakova.