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Fight With Cash: Shall the NBU Manage to Overcome Love of Cash Cherished by Ukrainians


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm

And would it be therefore possible to bring the economy “out of the shadows”

The National Bank of Ukraine intends to decrease the volume of currency in circulation from 14.3% to 9.5% in GDP by 2020. The Head of the NBU, Valeria Gontareva, made a declaration about this last week. According to her introduction of non-cash payments is “one of the principal strategic areas of development of the Ukrainian banking system”. According to the information provided by the NBU 58% of the people’s profits last year were received in non-cash form and only 18% of expenses were made in cashless form.

First and foremost the Head of the NBU deems it necessary to introduce cashless payments in everyday operations – settlement of transportation and utility services; she also called for transition of all the state payments, starting from pensions and students’ monthly education allowances into the cashless form. Ms Gontareva added that the NBU will direct its efforts to such fields of concern as decrease of the demand for cash money, promotion of cashless payments, development of payment infrastructure and change of people’s habits. Oleksandr Vygovskyy, a lawyer of Ilyashev & Partners Law Firm shares his insights with Forbes about the timeliness and lawfulness of such initiative, as well as about the beneficiaries deriving advantages from it.

The measures proposed by the National Bank of Ukraine (the NBU), which are directed at increasing the volume of cashless financial operations and popularization of cashless payments among the population, represent another attempt to bring the vast capitals circulating in the “shady area” into the open. At the same time it must be noted that such efforts of the NBU in this sphere will unlikely contribute to unshadowing of the economy, if anything they will expedite capital outflow into the shade.

The main announced areas of focus on increase of cashless financial operations, especially those related to “popularization of cashless settlements” and “change of the people’s habits(!)” will not likely bring positive results in this sphere. At the same time the regulator’s habitual administrative measures – for example, severe limitation of the amounts of cash settlements (which is discussed for years) – may also prove doubtful with consideration for their effectiveness rate.

As of today the limitations on making cash settlements in Ukraine are establishes by the Decree of the Board of the National Bank of Ukraine “On establishment of the ceiling amount of cash settlements” No. 210 as of June 06, 2013. Pursuant to p. 1 of this Decree towards the settlements made by an individual person with an enterprise (entrepreneur) throughout one day for goods (works, services), as well as towards settlements between individual persons under the sale and purchase agreements subject to notarization, established was the ceiling limit in the amount of UAH 150 000 (one hundred and fifty thousand hryvnias).

At the same time individual persons have the right to carry out settlements for the sum exceeding UAH 150 000 by transferring the moneys from the current account to another current account, entering and/or transferring monetary sums to current accounts (including to the separate current deposit account of a notary public in the national currency).

In practice such limitations may be fairly easy circumvented by people; the evasion schemes are related to breaking the amount of payment for a big-budget purchase into parts, resorting to a deferred payment and payment by installments, engagement of an intermediary – a legal entity, use of a credit purchase, when it is not an individual person but the bank who makes the settlement for the purchase upon the buyer’s later settlement of the credit to the bank (which certainly takes more than one day).

Circumvention of the mentioned limitations is, first and foremost, related to the unwillingness of the population to expose their expenses before the tax authorities (and this “habit” will unlikely be broken), as well as to concerns related to precarious position of many Ukrainian banks under the conditions of the permanent financial crisis. One may assume that in case of introduction of new limitations the new evasion schemes will arise (or the existing schemes will become more complex), and the total effect will fall flat.

The effectiveness of the proposed measures will be high only in case of achievement of a corresponding level of development of the cashless settlements system characteristic of the western countries, but not of Ukraine. Circulation of the cash amounts, about which the NBU is disturbed, purports the people’s distrust towards the banking system in general. Such distrust cannot be reduced by applying the administrative measures (for example, the decrease of the limit of the operations available). In addition under the condition of a wave of bankruptcies among the banks it may be problematic to make a choice regarding a financial institution to open a current account with, because at any moment the account holder may find it impossible to withdraw his money from the account.

In the face of depreciation of Ukrainian currency and increase of prices the artificial stimulation by the regulator of cashless settlements may result in further decrease of the trade turnover. The shadow profits will nevertheless remain in the shade and the practice of concealment of real cash settlements will grow even more wider (for example, through execution of gift contracts, hiding the settlements by fictitious offset of similar liabilities etc.). In addition the e-declarations of Ukrainian state officials and politicians more than eloquently demonstrate to the ordinary people that the bank is not an appropriate place to save money.

Most likely the mentioned developments are being lobbied by the banks wishing to, at least in part, cover the deficiency of the interest profit at the expense of commission profits from settlement operations. For them such measure may reap certain benefits: increase of the balance assets at the clients’ accounts, increase of the volume of profits at the expense of tariffs for transfer and withdrawal of money from the accounts, growth of the client base etc. However, such measures will not likely increase the banks’ liquidity and become the panacea from insolvency which has recently been growing into the epidemic.

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