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Reduction of Cash Payment Limits Shall Have Zero Effect


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm
Source: Ukrainian News

National Bank of Ukraine (hereinafter – NBU) announced three times lower limits for cash payments with the involvement of individuals since 04.01.2017 – from 150 thousand UAH to 50 thousand UAH. The corresponding amendments have been introduced based on the NBU Board Resolution №407 dated 25.11.2016 “On Amendments to the NBU Board Resolution №210 dated 06.06.2013 “On Setting an Upper Limit for Cash Payments”.

The limit of 50 thousand UAH for cash payments shall affect the following two cases:

1) in case payments are settled between an individual and an enterprise (individual entrepreneur) within one day;
2) in case payments are settled between individuals under sale and purchase agreements subject to notarization.

In each of these cases when the limits of 50 thousand UAH are exceeded, the transactions may be settled only in cashless form – by way of funds transfer from one current account to another or by way of debiting and/or transferring of sums to current accounts (including notary’s deposit to a separate account in national currency).

Such NBU’s measure may be deemed as predictable and expected: the regulator has long ago announced its necessity (moreover, the year before last the limits were discussed to be reduced as low as 20 thousand UAH). In the press-release published on its website the regulator states that “the designation of cash payment limits at the level of 50 thousand UAH shall make no inconveniences for citizens and shall have no influence on people’s daily purchases, as it related exclusively to major purchases (real estate, jewelry, vehicles, objects of art, furs, expensive wrist watches, travels etc.)”. According to the NBU, the setting of such upper limits for cash payments with the involvement of individuals shall provide for sustainable cash flow into the banking system and accelerate its turnover, as well as narrow the application of cash and boost the development of wire transfers.

Therewith, in our opinion, the abovementioned reduction of cash payment limits shall only lead to the increase in the number of schemes for bypassing of such restrictions and to the lingering of the transactions behind the scene. As practice shows, the citizens handle such limitations relatively easy, for example, by breaking the payments for major purchases into small parts (as the abovementioned Resolution of the NBU refers to the payments settled within one day), widespread use of deferment or installment of settlements (frequently pretended), making the purchases on credit (this is also not a “one day deal”), executing the purchase by way of gift agreement, concealing the payments by offsetting a similar claim of regress etc.

The bypassing of the abovementioned limitations mainly refers to the unwillingness of the citizens to demonstrate their revenues to tax authorities, to pay bank fees for settlement and cash services (which are quite high for major transactions!). In addition, it refers to the concerns over the doubtful position of various Ukrainian banks that anytime may join the list of bankrupt financial institutions. Therefore, one may easily assume that upon the reinforcement of the specified limits the new or more complicated bypassing schemes will arise and the overall effect will remain zero.

This novelty may bring some advantages for banks, resulting in the increase of surplus balance of clients’ accounts, increase of revenues due to fees for cash transfer and withdrawal, expansion of client base. However, in the context of banking sector continuing stagnation and capital deficit of a great number of banks, these advantages may hardly become significant.

The NBU in its statement points out that this decision totally complies with international experience and illustrates the experience of France, Belgium, Portugal, Italy, Spain and Greece that designated the upper limits for cash payments and thereat are quite successful economically. In return it is possible not only to list even more successful countries (for instance, Germany, Austria, Finland, Sweden, Slovenia etc.) that have much more stable banking sector than Ukraine, but also to underline that such measure shall be efficient only upon the achievement of the corresponding level of wire transfers system development, which is typical for Western countries, but not for Ukraine.

The fact that large amount of cash is in circulation indicates the populations’ overall non-confidence in banking system (that is not surprising due to the “bankfall” during the last three years). Administrative measures are not able to fix this situation. In a situation when the account holder may become unable to withdraw his money from his account or make necessary transactions at any time, when a significant part of remunerations is still paid in cash, the attractiveness of cash payments is undeniable. In addition, it may be assumed that during the continuing depreciation of national currency and prices’ increase the regulator’s artificial stimulation of wire transfers may lead to further reduction of business turnover.

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