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Ways To Simplify Currency Exchange


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm
Source: Novoe vremya

The need in currency regulation liberalization has arisen long ago in Ukraine.

The obsolete normative system rests upon the Decree of the Cabinet of Ministers of Ukraine “On Currency Regulation and Currency Control System” adopted in 1993. The complexity and unjustified bureaucratization of currency sector do not promote the development of the financial markets. The so called anti-crisis limits that the National Bank introduced in 2014 and that are regularly extended have led the major portion of the currency market into the shadows, and promote only the development of foreign exchange cash “black market”.

Moreover, the currency liberalization has a great importance in the context of the integration into the European financial and economic zone and complies with the obligations undertaken by Ukraine under the Association Agreement concluded between Ukraine and the EU in June 27, 2014. Thus, pursuant to the Article 145 of this Agreement the Parties ensure the free movement of capital relating to direct investment, to credits related to commercial transactions, and of capital relating to portfolio investments and financial loans.

Generally, the currency regulation liberalization has already been launched with the abatement of temporary anti-crisis limitation of the National Bank (for example, the amount of foreign currency revenue subject to obligatory sale has been lowered, the maximum term for export-import operations settlement has been extended, the term for the reservation of hrivnya for the purchase of foreign currency has been decreased, the maximum limit for purchasing the foreign exchange cash has been increased up to UAH 12 000, the prohibition of dividends repatriation has been alleviated). In case there are no downturns in the economics, the NBU in its Concept of new currency regulation of December 01, 2016, announced the whole package of currency liberalization measures.

These measures include at the first stage the gradual cancellation of the requirements concerning the obligatory sale of revenues in foreign currency, the maximum amount of the pre-payment under the import contracts, the maximum terms under the export-import contracts, repatriation of revenues from the termination of membership or the reduction of capital share, the simplified obtainment of license for direct investments to support the export of the Ukrainian goods.

The next stage envisages even more revolutionary measures like the cancellation of the prohibition of early loan repayment from non-residents, the regulation of maximum interest rate under the credits from non-residents, the guarantee of the free drawing out of funds gained from the sales of shares and non-state bond certificates, the total cancellation of the licensing of investments and transfer of funds abroad. Therewith, the NBU promises the gradual transition from the licensing system of currency regulation to the notification procedure when conducting the currency operations. Instead of the abovementioned Decree of the Cabinet of Ministers the NBU shall develop the draft Law of Ukraine “On Foreign Currency”, which should form the framework document determining the basic principles of currency regulation.

These measures shall have a positive impact first of all for business conducting international or investment operations. The cancellation of limits to the export-import operations and direct foreign investments shall promote the export potential of Ukraine.

The currency regulation shall become more transparent and understandable for business, and the temporary and financial expenses for the compliance with the currency legislation shall significantly decrease (for example, the sale of currency revenues creates additional transaction expenses for exporters). Financial institutions (and their clients as well) shall feel more convenient being able to invest their assets into the international markets for the mitigation of risks in Ukraine (therewith the Ukrainian banks are already provided with the opportunity to purchase the number of foreign debt securities without the individual license from the NBU). The Ukrainian companies shall need to create less corporate structures for the conduct of international operations, the obtainment of additional funding and the possession of assets. Liberalization shall also promote the speed and efficiency of the trans-border settlements without which the integration into the world-wide economic environment is inconceivable. Moreover, the removal of the limits to the capital outflow shall promote its inflow into the country, as foreign investors shall feel more comfortable realizing that they at any moment may take their investments or revenues from the investment operations. Therefore, the currency liberalization is definitely a progressive move, which shall make the business life significantly easier.

Therewith, it should be mentioned that the abovementioned measures shall take effect simultaneously with the enforcement of financial monitoring and control by fiscal authorities for the prevention of uncontrolled withdrawal of capitals abroad (however, the volume of capital outflow depends not on the strictness of the currency control, but on the efficiency of the customs and tax policies of the country, its investment climate). Moreover, it should be taken into account that all the plans announced by the NBU regarding the liberalization of the currency regime shall be implemented only if the financial situation in the country is stable and the International Monetary Fund is in effect, and this raises doubts in their rapid implementation.

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