Cashless society and de-dollarization in Ukraine

Cashless society and de-dollarization in Ukraine

What is missing from present discussions?

VISNYK OF THE NATIONAL BANK OF UKRAINE | December 2016

The National Bank of Ukraine stepped on the track to a cashless economy aiming at reforming the financial system, improvement of the transmission mechanism, and reduction of the underground economy and corruption. A substantial part of money in the Ukrainian economy is estimated to be foreign cash in circulation.

“Negative mirage” was first mentioned by Professor Robert Mundell (awarded a Nobel Prize in Economic Sciences in 1999) at his lecture in the Croatian National Bank Conference in 1996, Mundell, (1997). He went on to explain that a mirage is something we see but is not there, like Fata Morgana in the deserts. Economists like to use the term “negative” so we speak about negative growth rate, not a “fall” rate. Thus, a negative mirage is something that is there, but we do not see it. He was referring to GDP in transition economies. In the early to mid-nineties, official statistics would show a deep dive in GDP in transition economies, but reality was not as bad as statistical numbers pointed to. Official statistics do not always capture all economic activity, especially in so-called transition economies, whose structure was changing too rapidly. It is worth noting that statistical omissions in economics are not limited to post-socialist economies. Recently a lot of emerging countries have “increased” their economies by a so-called rebasing of GDP. The most notable example is Nigeria, who increased its
GDP by 90% in 2014.

Countries where dollarization was never a problem are typically those whose economic history is not burdened with inflationary periods, currency depreciations, and banking crises. If a small percentage of assets are held as FCC, this indeed should not be a top priority for policy makers.

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