The National Bank of Ukraine recognizes the benefits of endorsing crypto innovations but also fears cryptocurrencies could gain ground on the national fiat. Announcing its monetary policy guidelines for the near future, the regulator noted it’s going to defend the status of the hryvnia as the only legal tender in the country.
Bank of Ukraine Won’t Let Crypto Replace Fiat Money
Under the current administration in Kyiv, Ukraine has taken steps to regulate its expanding crypto space. Earlier this month, the Ukrainian parliament adopted a law “On Virtual Assets” legalizing crypto-related activities and is now working on tax amendments pertaining to cryptocurrency transactions. President Volodymyr Zelensky designated the crypto market as a “development vector” of the nation’s digital economy.
Against this backdrop, the National Bank of Ukraine (NBU) has acknowledged that innovations associated with virtual assets, or cryptocurrencies, can improve access to financial services for Ukrainians while increasing competition among market participants, and also bring investments to the East European country. The regulator supports facilitating the growth of the nascent digital currency industry.
At the same time, the central bank sees certain risks in cryptocurrencies, its recently adopted “Basic Principles of Monetary Policies for 2022 and Medium-Term Perspective” revealed. According to the document quoted by Forklog, the spread of decentralized money may stimulate the outflow of funds from bank deposits into digital assets, endangering financial stability, and could increase evasion of financial monitoring.
Most of all, the NBU fears that cryptocurrency can potentially substitute the national fiat money, the Ukrainian hryvnia, leading to the “emergence of a parallel monetary circulation.” To limit these risks, the authority intends to prevent any restrictions on the use of the hryvnia as the exclusive legal tender in Ukraine as it’s also preparing to issue a digital version of the sovereign currency.
While noting that cryptocurrencies don’t have a significant impact on the government’s monetary policy and financial stability at present, the National Bank of Ukraine admits this is likely to change in the future. With technological progress and market expansion, growing awareness and investor interest, “the prevalence of virtual assets may increase significantly, and their price volatility may decrease,” the central bank concludes.
In an interview in August, Deputy Minister of Digital Transformation Oleksandr Bornyakov promised Ukrainians will be able to keep, trade, and spend cryptocurrencies. The government official pointed out that although the new legislation does not permit their use as a means of payment, it will be legal to pay with crypto through instant conversion to the hryvnia. Bornyakov added he expects to see a whole new market for intermediary services allowing digital coins to be stored, exchanged, and used in payments.
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