Ukraine is starting to consider abandoning the US dollar as the reference currency for the Ukrainian hryvnia, possibly tying its currency more closely to the euro, amid a split in global trade and growing ties with Europe, Andriy Pyshnyi, the head of Ukraine’s Central Bank, in a written e-mail told Reuters.
Ukraine introduced the hryvnia in 1996 and has since been valued using the US dollar.
The possibility of joining the European Union (EU), “the strengthening of the EU’s role in ensuring our defence capabilities, greater instability on world markets and the possibility of global trade fragmentation” make the central bank consider the switch, Pyshnyi said.
The transition “is complex and requires qualitative and multifaceted preparations, Pyshnyi added, the most direct comment yet by a Ukrainian official on the possible changes.
The US dollar is the main currency used in world trade and is held by many countries as a reserve currency. Some countries, such as Saudi Arabia and Hong Kong, have tied their currencies to the US dollar.
However, under President Donald Trump, the US has launched a trade war with very high tariffs, which makes some question whether the dollar will remain the world’s main reserve currency.
TRANSACTIONS IN US DOLLARS CONTINUE TO DOMINATE ALL FOREIGN EXCHANGE MARKETS, SAID PYSHNYI, BUT EURO TRANSACTIONS ARE SLOWLY INCREASING IN MOST AREAS, ALTHOUGH “MODERATELY FOR NOW”.
After the Russian invasion in 2022, Ukraine’s central bank set a fixed exchange rate of 29 hryvnia to the US dollar, but later devalued the currency due to economic problems.
In October 2023, it switched to a managed exchange rate system, still based on the dollar.
Almost a year ago, the EU started accession negotiations with Ukraine and Moldova, although they still have a long and difficult road ahead before they can join the bloc. Moldova already changed its reference currency to the euro in January 2024.
Pyshnyi said that a revival of investment and consumer activity, driven by closer ties with Europe and the normalisation of the economy, could help the economy grow by 3.7-3.9% over the next two years. However, the future of the economy largely depends on how the conflict develops.
“A quick end to the war would undoubtedly be a positive scenario with good economic results if it included security guarantees for Ukraine,” Pyshnyi said. “However, it is important to recognise that the economic benefits of an end to the war would most likely take time to materialise fully.”
Ukraine is now in its fourth year of fighting Russia. While US military aid has been delayed under Trump, European leaders have pledged to strengthen Ukraine to ensure its future security, but progress has been slow. Ukraine also signed an agreement giving the US special access to its mineral resources projects and funding investment in the reconstruction of the country.Meanwhile, the US dollar has fallen by more than 9% since Trump’s return, as investors divest themselves of US assets.
Experts argue that a weak dollar does not mean it will lose its role as a global reserve, but it has historically been linked to security alliances and military ties with Washington.
Ukraine depends on foreign financial aid to support its war spending. Pyshnyi said he expects 55 billion US dollars this year – enough to cover the budget deficit and set aside some for future years when aid may fall short.
He added that Ukraine expects to receive around 17 billion US dollars in 2026 and 15 billion in 2027.