Ukraine considers move to euro from dollar amid geopolitical shifts

LONDON, May 8 ------ Ukraine is starting to consider a shift away from the US dollar, possibly linking its currency more closely to the euro amid the splintering of global trade and its growing ties to Europe, Central Bank Governor Andriy Pyshnyi told Reuters. 

Potential accession to the European Union, a "strengthening of the EU's role in ensuring our defense capabilities, greater volatility in global markets, and the probability of global-trade fragmentation," are forcing the central bank to review whether the euro should be the reference currency for Ukraine's hryvnia instead of the dollar, Pyshnyi said in emailed remarks published Wednesday (May 7). "This work is complex and requires high-quality, versatile preparation," Pyshnyi added, in the most direct comments by a Ukrainian official on a possible shift.  

The dollar dominates international trade and accounts for the majority of global reserves. Major economies, including Saudi Arabia and Hong Kong, peg their currencies to the dollar. But under President Donald Trump, the US has unleashed a trade war by introducing what could be the highest tariffs in a century, a move that has prompted some observers to question the future role of the dollar as global reserve currency. Now, in the fourth year of fighting an invasion by Russia, Ukraine has also seen Trump temporarily cut off some military assistance to the country.  European leaders, including those from the EU, have vowed to strengthen Kyiv's army to ensure it can be the cornerstone of future security in Ukraine, but progress has been difficult.  

Meanwhile, Ukraine struck an agreement that gives the United States preferential access to new Ukrainian mineral deals and which funds investment in the nation's reconstruction. Since Trump's return to the White House, the greenback is down more than 9 per cent against a basket of major currencies as investors pull back from owning US assets.  Some experts warn against associating the strength of the dollar with its reserve-currency status. Yet historically, dollar holdings have been linked to security alliances and military ties to Washington. Transactions with the US dollar continue to dominate all segments of the FX market, said Pyshnyi, but the share of euro-denominated transactions has been rising in most segments, though "so far moderately." He did not elaborate.  

Ukraine launched the hryvnia in 1996, and over the decades, it has used the dollar as the reference currency. Immediately after Russia's invasion in February 2022, the central bank imposed capital controls and pegged the hryvnia at an official rate of about 29 to the US. dollar. Ukraine was forced to devalue later due to a buildup of fiscal imbalances. In October 2023, the central bank moved from a firm peg to a managed exchange-rate regime that uses the US dollar as the reference, the gauge to measure FX interventions and for smoothing fluctuations in the exchange rate. 

Source: channelnewsasia.com