Ukraine central bank may limit cash operations at UAH 50K cap

The National Bank of Ukraine (NBU) might reduce its cash transactions limit to UAH 50,000 from UAH 150,000, said NBU Deputy Head Yakiv Smoliy, as reported by the Interfax-Ukraine news agency on Sept 3. “At the start of September, UAH 276 bln was circulating outside the banking system,” he said. “One of the key goals the NBU is targeting by lowering the limit on cash transactions is returning funds to the banking system.” The UAH 150,000 limit was introduced in September 2013.

Alexander Paraschiy: All the governors of the National Bank have been dreaming about reducing the level of cash transactions in the economy.  The logic is simple – the more operations that pass through bank accounts, the better control over monetary aggregates the NBU has. In the context of moving towards inflation-targeting, strengthening controllability of monetary aggregates is essential.

Still, it does not solve the problem of widespread use of cash in Ukraine. The limit will apply only to official transactions, while the shadow economy is huge (close to 50%, according to the Ministry of Economy). We anticipate a limited effect from this move as more comprehensive steps on legalizing the economy are needed to minimize cash transactions. 

As an important side effect, this measure will also add some liquidity to Ukrainian banks and increase their commission income. Again however, the scale of such a benefit won’t be large.