The National Bank of Ukraine is considering abandoning the dollar and pegging the hryvnia to the euro
Ukraine intends to abandon the US dollar and peg the hryvnia to the euro. This decision may be made against the backdrop of changes in the global trade market and the deepening of Ukraine's ties with Europe. The agency was informed about such a possible decision Reuters The head of the National Bank, Andrey Pyshny, reported.
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Potential accession to the European Union, “the strengthening of the EU’s role in ensuring our defense capability, increased volatility in global markets and the likelihood of fragmentation of world trade” are forcing the National Bank to consider using the euro instead of the dollar as the base currency for the hryvnia, Pyshny noted.
“This work is complex and requires high-quality and comprehensive preparation,” he noted.
The dollar still dominates international trade and accounts for the bulk of global reserves. Major economies, including Saudi Arabia and Hong Kong, have pegged their currencies to the dollar.
But under President Donald Trump, the US has launched a trade war, imposing perhaps the highest tariffs in a century, leaving some observers questioning the dollar's future as the world's reserve currency.
Now in its fourth year of war with Russia, Ukraine has experienced a temporary halt in American military aid from the Trump administration.
EU leaders, in turn, promised to strengthen the Ukrainian army so that it would become the basis of the country's future security.
Meanwhile, Ukraine has entered into an agreement giving the United States preferential access to new mining contracts and funding for the country's reconstruction.
Since Trump's return to the White House, the dollar index (DXY) has fallen more than 9% against major currencies as investors have shifted away from U.S. assets.
Some experts caution against a direct link between the dollar’s strength and its status as a reserve currency. However, dollar reserves have historically often been correlated with security alliances and military cooperation with Washington.
According to Pyshny, the dollar continues to dominate in all segments of the currency market, but the share of transactions denominated in euros is “growing, albeit moderately.” He did not provide details.
The hryvnia was introduced in 1996, and since then the dollar has been used as the base currency to determine the hryvnia exchange rate.
Immediately after Russia's invasion in February 2022, the National Bank imposed currency restrictions and fixed the hryvnia exchange rate at around $29. This rate had to be adjusted later due to accumulated fiscal imbalances.
In October 2023, the bank abandoned the hard peg and moved to a managed exchange rate regime with the dollar as a benchmark to conduct currency interventions and smooth out exchange rate fluctuations.
The EU opened membership talks with Ukraine and Moldova almost a year ago, but the road to entry will be long and difficult. European Commission President Ursula von der Leyen said in February that Ukraine could join the EU by 2030 if it maintained the pace of reform in its political and judicial systems.
As part of the preparations, Moldova changed its base currency from the dollar to the euro on January 2.
According to Pyshny, the restoration of investment and consumer activity thanks to rapprochement with Europe and the normalization of the economy will allow GDP to grow in the next two years to 3,7–3,9%, but the growth dynamics are highly dependent on the progress of the war.
“A quick end to the war would certainly be a positive scenario with good economic consequences if it included security guarantees for Ukraine,” he noted. “However, it is important to understand that the economic benefits of ending the war will take time to fully materialize.”
Ukraine is counting on external funding to wage the war. According to Pyshny, about $55 billion is expected this year, which will cover the budget deficit and create a reserve of state finances for the coming years, when the volume of aid is likely to begin to decline.
“We predict that in 2026 Ukraine will receive about $17 billion, and in 2027 – $15 billion,” he concluded.
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