Ukraine's Foreign Exchange Rate Invervention Is Laughable

 | Feb 26, 2015 01:04AM ET

Colonel Cassad reports: It takes 44 hryvnia to buy a dollar in Mariupol, Ukraine's 10th largest city. Let's do some quick math.

On Monday (perhaps reflective of Sunday) Ellen, who lives in Kiev wrote

"Today $1 is worth 36 hryvnias on the black market. A week ago it was 20 hryvnais. No one knows where the bottom is. People buy anything just to get rid of hryvnias."

To be safe, let's call it 10 days ago. In those 10 days, the hryvnia plunged from 20 to the dollar to 44 to the dollar.
That is a decline of 54.54% in about 10 days. Here is the key sentence from her comment: "People buy anything just to get rid of hryvnias".

Laughable 'Official' Rate

Here is an amusing chart from Investing.Com for February 25:

I explain the chart below. Meanwhile, rest assured that not a damn thing transacts at that rate other than perhaps graft and illegal transactions by bankers and Ukrainian officials selling 25 hryvnias for a dollar.

Poroshenko Ultimatum

Yesterday I wrote:

Ukraine's Prime Minister Accused the National Bank of Negligence .

The Prime Minister of Ukraine complains that the NBU did not take control of output currency abroad for import contracts. According to him, during the last 9 months, the financial market has sold $51.5 billion.

He said that the total daily buying and selling foreign currency, carried out and controlled banks NBU on average from 100 million to 170 million.

"This means that some currencies bought and sold for the purpose of speculation, with the intention to buy the currency at a lower rate and then sell for a higher" - said the Prime Minister of Ukraine.

Currency Speculation? Incompetence?

Shocking! Say it ain't so Joe. Incompetence? Negligence? You bet.

It would be difficult to find a central banker on the planet that is truly competent. By definition, no one competent could even take the job because they would not believe in central bank planning in the first place.

That said, some are more incompetent that others.

Appraisal of Ukraine's Prime Minister

First, I have a couple of choice comments regarding Ukraine's prime minister.

  1. Ukraine did not have $51.5 billion in foreign currency reserves to bleed and I highly doubt $51.5 billion in other forex transaction.
  2. I congratulate anyone smart enough to sell or trade every hryvnia they had for any hard currency or gold.

Abandon Ship!

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I don't have a competence rating for Valery Gontareva, but I do have advice: Get the hell out of Ukraine immediately.

When you are dealing with hyperinflation and the prime minister accuses you of negligence, arrest is likely coming unless you stabilize the currency, and that is impossible by decree.

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