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Anniversary of the hryvnia: what happened to the Ukrainian currency over the period of 25 years

What happened to the hryvnia over the period of 25 years. Photo: NBU

What happened to the hryvnia over the period of 25 years. Photo: NBU

On September 2, 1996, a monetary reform took place in Ukraine. At that time the national currency, the hryvnia, was put into circulation, its hundredth part, a kopeck, and the emission of rubles was stopped. At that time, the National Bank of Ukraine (NBU) put into circulation 338.1 trillion rubles. They were exchanged for hryvnia at the rate of 100,000 rubles per 1 hryvnia.

The Page figured out what way the hryvnia made during 20 years after the monetary reform and how it has changed during this time.

The idea of creating its own currency in Ukraine appeared back in August 1990. At that time the Supreme Soviet of the Ukrainian SSR adopted the law "On economic independence" providing for the introduction of its own currency if the need arose.

By the way, the name "hryvnia" was not chosen by chance, because even in the times of Ukraine-Rus the similar word "hryvnia" meant neck jewellery. Already in the VIII-IX centuries, during trade operations and the payment of tributes, the hryvnia was used as a measure of weight and account. Subsequently, in different historical periods, this word has changed its meaning more than once.

In April 1991, a competition was announced among artists to create a design of a 5 UAH banknote depicting Bohdan Khmelnytsky. Vasyl Lopata and Borys Maksymov became the winners and got an order to prepare designs for other denominations of the hryvnia. In 1992, the first batch of banknotes was printed in Canada, and arrived in Ukraine in September-October of the same year. Later, two more batches were delivered from there in 1993 and 1995.

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However, the government failed to introduce the hryvnia as quickly as possible. One of the key reasons for this was the hyperinflation that has gripped Ukraine. Therefore, on January 10, 1992, the NBU introduced reusable coupons. For some time, rubles were also used in Ukraine, however, since November 1992, сoupon-karbovanets remained the only means of payment in cash and non-cash circulation. It was it that took a powerful heat of economic turmoil and hyperinflation in particular. By the way, according to the results of 1991, it was 390%, in 1992 it accelerated to 2,100%, and already in 1993 it soared to 10,256%. Therefore, the issue of introducing the hryvnia into circulation was returned to only after a certain economic stabilization in 1995-1996.

In the year of its birth, the hryvnia was a fairly strong currency: $1 cost only 1.83 UAH. In 1997, the Asian financial crisis broke out, and the next year economic problems also overtook Russia that was forced to declare a default.

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The Ukrainian economy was at that time closely linked with the Russian one, and therefore felt the consequences of its northeastern neighbors' problems. A sharp devaluation of the currency was one of them: from 1.86 UAH/dollar in 1997, the hryvnia first slipped to 2.45 UAH/dollar in 1998, 4.13 UAH/dollar in 1999, and finally stopped at 5.44 UAH/dollar in 2000. The Ukrainian currency held out in the corridor 5.05-5.44 for the next 8 years.

The hryvnia felt a new damaging blow in 2008 due to the global financial crisis. Its rate quickly collapsed to almost 8 UAH/dollar, where it remained for the next four years.

In the winter of 2014, the hryvnia began to fall rapidly. The average annual exchange rate at that time amounted to 11.88 UAH per dollar. In February 2015, the National Bank abandoned the fixed rate policy that had been in effect since the introduction of the hryvnia. The regulator moved to the formation of a floating rate determined in the interbank foreign exchange market.

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That year, the hryvnia collapsed even more—to 21.84 UAH/dollar. It showed the lowest average annual rate since independence in 2018, having fallen to 27.2 UAH/dollar.

In 2019, Bloomberg gave the Ukrainian hryvnia the world leadership in the rate of strengthening against the US dollar. That year, the Ukrainian national currency gained 19% against the dollar, while the Russian ruble and the Egyptian pound, which ranked second or third, strengthened by 12%. The average annual hryvnia exchange rate improved to 25.85 UAH/dollar.

Right about the same time, in October 2019, banknotes with denominations of 1,000 UAH with a portrait of Volodymyr Vernadsky were put into circulation. The banknotes have 22 security levels, in particular, a "window" protective tape and an optically variable element SPARK with a kinematic effect.

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Today, according to the unofficial Big Mac Index, the hryvnia is one of the ten most undervalued currencies in the world.

"A Big Mac costs 65 UAH in Ukraine and $5.65 in the United States. The expected exchange rate is 11.50. The difference between this and the actual exchange rate, 27.22, indicates that the Ukrainian hryvnia is undervalued by 57.7%," the compilers of the index explain.

At the same time, analysts from Kyiv School of Economics predict that the hryvnia exchange rate this year will be at the level of 28.2 UAH/dollar. Herewith, in their opinion, "greenbacks" at the rate of 30 UAH are just around the corner.

"At the end of 2021, the exchange rate of the hryvnia to the dollar will be 28.2 UAH per US dollar, and after that it will depreciate annually at a rate of no more than 3%. At the end of 2023, the hryvnia exchange rate will increase to 30 UAH per US dollar," analysts say.

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