Good day, everyone!
I’m glad that it has only been a month since Draft Law No. 8152 On Foreign Currency and Foreign Exchange Operations has been approved in the first reading and here we have gathered again to discuss the second reading of the Draft Law. This just proves how important and long-awaited is the Ukraine’s transition to a liberal, transparent and clear FX regulation.
For a quarter of a centaury the Ukrainian economy functioned according to outdated principles of the Decree On the System of Foreign Exchange Regulation and Control, which restrictive nature put off foreign investors and did not favor the development of domestic business. Without a doubt, everyone present here agrees that Ukraine is finally ready to convert to free FX operations following the European pattern.
Over the last ten months and especially of the Draft Law approval in the first reading, the NBU, business associations, banks, experts, members of the parliament and international organizations worked hand in hand to draft a common vision of the future FX regulation in Ukraine. We have analyzed the alternative draft law that has a number of appropriate and useful provisions to be considered for the Ukrainian economy and the investment climate. In a month over 200 comments and motions of MPs were processed.
At present, the Draft Law On Foreign Currency and Foreign Exchange Operations mirrors not only the vision of the President, who submitted it to the Verkhovna Rada, and the NBU that has been drafting the law since the end 2016, but the needs of the business community as well. We, the NBU, hope that you will support this Draft Law in the second reading already this week.
But, before the deliberations begin, I would like to stress that it’s crucial not to infringe the institutional independence of the NBU and to preserve its ability to accomplish its mission that is ensuring the financial stability. The Draft Law does not expand the NBU’s authority. It merely enables the NBU to protect the economy and the financial system of the country in the event of a crisis regardless of its nature and course.
If adopted, the Law On Foreign Currency and Foreign Exchange Operations will give ‘green light’ for a more expedient and full-scale liberalization long awaited by businesses and investors. We will be able to lift numerous FX restrictions as soon as the law enters into effect. For example, businesses and individuals will be given the opportunity to invest abroad with no individual licenses required. Also, business engaged in foreign trade will experience much easing. Gradually, under favorable macroeconomic conditions we will lift one by one remaining effective FX restrictions, until we achieve complete freedom for transacting FX operations. Businesses and households will be free to make their own decisions related to FX transactions, without having to obtain permission from the regulator.
Certainly, free movement of capital gives grate opportunities to improve the investment climate and foster the economic development of the country. At the same time, Ukrainian economy will increase exposure to different shocks that as a rule cannot be predicted. Hence, greater freedom imposes greater responsibilities on the NBU assigned by law to ensuring price and financial stability. We should possess sufficient options to prevent potential risks and threats.
However, we cannot know in advance the nature of a future crisis and the instruments the NBU will require to overcome it. The new Law was designed for decades of measures in the future, and today we just cannot predict even the conditions, in which the financial sector will operate in several decades. Respectively, a number of specific provisions we prescribe today may be unrealistic in the future. For this reason the Draft Law On Foreign Currency and Foreign Exchange Operations is a framework law and does not state any specifics.
Independence of the central bank for implementing protective measures in the event of a crisis is an integral of the macroeconomic and financial stability. In fact, the NBU will have its hands tied in terms of implementing quick and full-scale FX liberalization, unless it has sufficient authority to ensure the financial stability. This liberal law will lose its purpose, if it does not prescribe respective powers of the NBU.
We are certain that these powers will not hinder the economic development. Since the understanding that the NBU protects the economy promotes a more secure business environment.
Furthermore, this is common international practice. And international partners of Ukraine also underline the importance of preserving these provisions in the Draft Law. The International Monetary Fund, the European Bank for Reconstruction and Development, the Delegation of the European Commission to Ukraine are all convinced that the Draft Law should delegate the NBU sufficient authority and instruments to provide a timely and effective response to crises.
Thank you for your attention and we hope for your endorsement.