Restrictions on trading in foreign currency domestic loan govt bonds provided in memo with IMF to preserve supply of currency on market – NBU
Restrictions on trading in foreign currency domestic loan government bonds, announced by the National Securities and Stock Market Commission last week, according to the Memorandum on Economic and Financial Policy with the IMF, were to be implemented by the end of March and are aimed at preserving the supply of currency from exporters, the National Bank of Ukraine (NBU) said.
"The issue of taking measures by the National Securities and Stock Market Commission to ensure the effectiveness of capital movement control measures, including by harmonizing regulation and coordinating capital movement restrictions for securities transactions with those applied to banking transactions, was included in the starting date of December 2023," the NBU told Interfax-Ukraine.
The National Bank states that currently residents are carrying out transactions to purchase foreign currency domestic loan government bonds for hryvnia through non-bank investment firms and the regulator of such transactions is the National Securities and Stock Market Commission, while banks have been prohibited from such transactions since March 21, 2022.
According to the NBU, the companies carry out these transactions in order to purchase foreign currency to circumvent the restrictions established by the National Bank. The essence of the scheme is as follows: instead of selling foreign exchange earnings on the foreign exchange market of Ukraine, exporters buy foreign exchange domestic loan government bonds from banks for them, and then sell them for hryvnia through investment firms to other companies and individuals. The exporters' interest is in selling at a rate higher than the rate on the interbank foreign exchange market, while the interest of buyers, who then hold these foreign exchange government bonds until maturity, is in receiving foreign exchange.
"These companies, given the current restrictions and not having currency contracts, are unable to buy foreign exchange on the foreign exchange market of Ukraine. And although during the above operations, currency is not withdrawn from Ukraine, this reduces the supply of foreign exchange on the foreign exchange market of Ukraine (due to avoiding the sale of export earnings) and increases pressure on the country's international reserves," the NBU explains its disagreement with such operations.
The National Bank said it had repeatedly appealed to the National Securities and Stock Market Commission with proposals to make such transactions impossible, and in the latest version with the IMF, this measure was detailed with a deadline: "to further tighten restrictions on capital movements, we will require that by the end of March 2025, settlements for over-the-counter transactions with foreign currency bonds by non-bank institutions be carried out through the Settlement Center."
As reported, on May 23, the National Securities and Stock Market Commission approved a draft resolution On the specifics of concluding and executing transactions with foreign currency government bonds during martial law.
