The European Union is working to make its nine currencies available to the more than 3.5 million Ukrainian refugees in the bloc, some of whom are unable to pay for their basic needs because many EU banks do not exchange their local currency, the hryvnia, for the local currency.
European officials believe a significant proportion of Ukrainians come to the EU with hryvnia cash and no access to credit cards to pay for essential goods.
The EU has opened its doors to Ukrainians fleeing the war for up to two years, promising them the right to work and the provision of basic medical and schooling services, as well as targeted economic support. Refugees arriving with wads of Ukrainian currency they cannot use pose a more immediate challenge.
The Central Bank of Ukraine has introduced a series of capital controls to prevent its currency from sharply depreciating and to protect its foreign exchange reserves. Many EU banks do not want hryvnia because they fear the exchange rate risks involved.
The EU has been negotiating possible solutions for several weeks. Talks with the European Central Bank ultimately came to nothing as the ECB would have needed a guarantee from the European Commission, the EU’s executive body, to offset currency or other financial risks. The ECB oversees the euro, the common currency used by 19 of the 27 EU members.
Most Ukrainians come to EU countries that don’t use the euro, such as Poland, Hungary and Romania.
Instead of relying on EU guarantees, Ukraine has accepted that its central bank absorbs currency risks.
Under a scheme unveiled on Friday, a Ukrainian refugee would be entitled to exchange up to 10,000 hryvnia, just over 300 euros (about $332), for an EU national currency at a fixed exchange rate with no additional fees. The local bank could then pass the Ukrainian currency to its national bank at the same fixed exchange rate and in return received the same value of the local currency issued.
The central bank would then have up to three months to transfer this Ukrainian currency to the Central Bank of Ukraine and in return receive their national currency based on the same fixed exchange rate that the Ukrainian refugee originally received.
European officials said that while Ukraine’s central bank faces some currency risk, authorities in Kyiv said that if the limit is set at 10,000 hryvnia, they will have sufficient foreign exchange reserves to comfortably absorb losses from Ukraine’s currency devaluation. That would only change if twice as many refugees came to the EU and wanted to use the system.
It will be up to national authorities to decide exactly how the system will be organized as long as it respects these basic guidelines.
Officials said a similar system set up last week in Poland, where about two million Ukrainian refugees have arrived, has received only modest demand so far, and they are watching closely for any sharp increases in the number of refugees seeking help. They said there is evidence that newcomers from Ukraine are increasingly relying on credit cards for their basic needs.
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https://www.wsj.com/articles/europe-tries-to-supply-cash-lifeline-to-ukrainian-refugees-11648807994 Europe tries to provide Ukrainian refugees with lifelines