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Ukraine force to Float Currency Because of Run on the Hryvnia
from Armstrong Economics:
The fear of rising war in Ukraine has sent people scrambling to buy dollars. The government has now placed restrictions on buying dollars. Ukraine’s currency reserves have fallen so dramatically that the national currency, the hryvnia, is now hanging in mid-air. The National Bank of Ukraine has been forced to back off of the fixed exchange rate for they over-valued the currency and they would have been wiped out of all reserves trying to pretend there is nothing wrong.
Thus, on Feb. 7 the Central Bank introduced a new exchange rate for the hryvnia at 8.708 to the dollar in what appears to be an attempt to meet the lending requirements of the International Monetary Fund. The currency will now float and that will result in a further decline against the dollar. This geopolitical crisis is reflected in the currency and is what I have been trying to explain – it is always a matter of CONFIDENCE. This crisis is also having a negative impact upon Russian banks that went into Ukraine for business before the Lehman Brothers crisis of 2008.
