Ukraine "moves away" from the US dollar - Central Bank considers switching to the euro as reference currency
Ukraine is starting to consider moving away from the US dollar, tying its currency more closely to the euro, Central Bank Governor Andriy Pyshnyi told Reuters.
Potential membership in the European Union, a "strengthening of the EU's role in ensuring our defense capabilities, greater volatility in global markets and the probability of fragmentation of global trade" are forcing the central bank to reconsider whether the euro should be the reference currency for Ukraine's hryvnia instead of the dollar, Pyshnyi said. "This work is complex and requires high-quality and comprehensive preparation," he added.
The U.S. dollar dominates international trade and accounts for the majority of global reserves. Major economies, including Saudi Arabia and Hong Kong, peg their currencies to the greenback. But under President Donald Trump, the United States has launched a trade war by imposing the highest tariffs in a century, a move that has led some observers to question the dollar's future role as a global reserve currency.
In its fourth year of war with Russia, Ukraine has also seen Trump temporarily cut off some military aid to the country. European leaders have pledged to strengthen Kiev's military to ensure it is the cornerstone of Ukraine's future security, but progress has been slow.
Since Trump returned to the White House, the U.S. dollar has fallen more than 9% against major currencies as investors retreat from holdings of U.S. assets. Some experts warn against linking the dollar's strength to its status as a reserve currency. Historically, however, dollar holdings have been linked to security alliances and military ties with Washington.
Ukraine launched the hryvnia in 1996 and has used the dollar as its reference currency for decades. Shortly after Russia invaded in February 2022, the central bank imposed capital controls and pegged the hryvnia to an official rate of around $29 to the U.S. dollar. Kiev was later forced to devalue it due to a buildup of fiscal imbalances.
In October 2023, the central bank switched from a fixed exchange rate to a managed exchange rate regime, which uses the US dollar as a reference to measure foreign exchange interventions and smooth out fluctuations.
The EU opened membership talks with Ukraine and Moldova nearly a year ago, although a long and difficult road lies ahead before Kiev can join the bloc. EU President Ursula von der Leyen said in February that Ukraine could join the Union by 2030, provided it continues to implement reforms to its political and judicial systems at the current pace.
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