Skeleton in the closet: What the Draft Law On Currency hides? Serhii Rybalka MP, former Chair of the VR Financial Policy and Banking Committee, member of the VR faction of the Radical Party of Oleh Lyashko

While analyzing the urgent presidential Draft Law On Currency, its supporters are spreading about the slogan “Everything which is not forbidden is allowed”. However, not many have looked into the prohibitions proposed in the draft law. And there are some quite explicit ones. Moreover, they provide grounds to suspect that this is another attempt to preserve the current system and even strengthen the limitations, while hiding behind the verbal euphoria of ‘liberalization’ and ‘free capital flow’.

This means that it is still early for an ordinary citizen who managed to save up some currency to imagine themselves having an account at a Swiss bank. Why?

Selective approach ‘for the chosen’

The model of currency control over transactions and settlements in foreign currency in Ukraine is extremely outdated. It was introduced by decrees in the past century and it is rightfully considered one of the toughest in the world. Nobody in the government speaks about it, but by CTC (Converting and Transferring Currency) indicators of the World Bank, Ukraine is among the countries with the toughest currency limitations in the world, on the same level as Venezuela, Nepal, Angola and Ethiopia.

This substantially weakens competitive positions of our country, limits possibilities of citizens and regularly leads to multi-billion losses for businessmen. However, as we all hear on a daily basis, this does not prevent pumping money out of Ukraine.

The biggest problem is that the limitations are exclusively administrative and objectively do not meet their purpose, as they are, most likely, of selective nature. We hear declarations that the purpose of the presidential draft law On Currency, as it should be, is to create equal conditions, ensure free capital flow, and remove extremely tough and ungrounded currency limitations. However, if you look beyond the declarations, at the essence, you will see that the draft law proposes to grant NBU excessive powers on licensing currency transactions and to allow the central bank to theoretically freely impose any penalties and introduce any limitations to its liking.

The same administrative methods and selective ‘individual’ approach ‘for the chosen’. Only in a new way.

Indeed, the NBU, as a currency oversight authority, and the banks, as agents, will have the right to demand documents from the companies and people on performed transactions and the currency oversight bodies will retain the right to conduct inspections in regards to compliance with the currency legislation.

Specifically, Article 11 of the presidential draft law envisages a very wide range of possibilities for the NBU ‘in case of presence of signs of unstable financial condition of the banking system’. They include mandatory sale of a share of currency proceeds, determination of the terms of settlements for export and import transactions, establishment of peculiarities of performance of transactions related to financial capital flow.

There is also introduction of special permits for performance of certain currency transactions along with reserving of funds for currency transactions. In addition to that, the article contains ‘other measures’ clause. At that, the NBU initiates such decision on its own, without the involvement of the NBU Council or the Financial Stability Council.

Meanwhile, the great number of declarative norms in this law, without the real mechanisms of their realization, provides even more temptations for the NBU to turn into an inquisitor. Unfortunately, in the proposed version, the presidential draft law is an attempt at monopolization of the market of capital withdrawal from the country, as there will be no full liberalization. The NBU’s authority over outgoing flows is still in place, as is the possibility of ‘individual’ approach. Will this facilitate inflow of foreign investments into the country? There is no need to answer this question.

So, since we are talking about limitations, we need to clearly envisage what we limit, why and where.

Alternative draft law

Together with colleagues, we registered an alternative draft law, which, among other things, proposes to determine clear grounds, conditions and procedure for applying currency limitations and also provides a detailed mechanism of responsibility for violation of the currency laws and sizes of penalties.

Naturally, our economy is becoming more a provider of raw materials and depends more on fluctuations of global prices for raw materials. For over a decade, import in the country has been much higher than export. The volumes of long-term foreign investments are miser with prevailing speculative capital. Our financial system still has not recovered from the biggest financial and banking crisis. We are still the undisputed leader in the world in terms of bad loans in banks. And we will live through the next decade under the pressure of huge, for such an economy, foreign debt. In such conditions, the risks of crisis devaluation of hryvnia will remain high. However, the more clear the criteria of their application are in the law, the fewer temptations there will be to use the power to serve one’s own interests and the better it will be for everybody and the more effective the actions on prevention and counteraction to future crises will be.

Therefore, we need to set boundaries to prevent the NBU from independently establishing currency limitations and endlessly continuing their term of action, for instance for a period of no longer than six months and not more than once a year. Furthermore, when introducing the limitations, the NBU will have to not only specify their term of action, but also the grounds for introduction of measures, the list of entities they apply to and forecast their impact. After the term of limitation runs out, the NBU Council must assess their result.

The presidential draft law does not contain such clear boundaries. And this will allow the regulator to manipulate the situation and make the lives of business and ordinary citizens harder.
Our approach is very simple: small and medium enterprises must be able to operate freely — purchase equipment and raw materials for production and ordinary citizens must have a possibility to purchase products or receive transfers from their relatives. Meanwhile, the schemes of withdrawing large capital from the country need to be stopped. The government also must have levers for minimizing the consequences of flight of speculative money during crises.

It is in the interests of the Ukrainian economy for the money to work. And the task of the government in this is to help the society develop and not choke it for the sake of one’s own benefit.