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Ukraine is Collapsing

In Business and Currency by Continental StaffLeave a Comment

There doesn’t seem to be much going right in Ukraine these days. Times are tough all around due to rebel and separatist violence in the East. There are strong pockets of pro-Russian support in these regions, and these divisions have torn the country apart at the source. Since its annexation of Crimea, Russia has supported these rebels around Donetsk (and other cities), resulting in an ongoing intervention to this day.

Now there’s another pressing issue facing Ukraine, it’s collapsing currency. In just two days, the Ukrainian hryvnia has fallen by a staggering 50%. Ukraine is running out of reserves, and as a result they’ve had to stop spending money propping up their own currency. From Thursday to Friday, their currency plummeted from 16.8 hryvnia per 1 USD to 25.3 hryvnia per 1 USD. Though this sharp drop is the most dramatic change in a long time, the Ukrainian economy has been in rough shape for a while – and a lot of that has to do with Russia.

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USD ($) to 1 Ukrainian Hryvnia. The collapse took place from Thursday (Feb 5) to Friday (Feb 6).

Ukraine and Russia: Frenemies?

Even though Ukraine is essentially fighting a war against Russia, it’s still Ukraine’s largest trading partner. With the recent problems in Russia brought on by cheap oil and sanctions, this has rebounded onto Ukraine. This leaves Ukraine in a no win situation. The violence has cut production since the government in Kiev doesn’t have access to factories in the east, while Ukraine still remains dependent on the country that took them away in the first place!

Going forward, it’s tough to see how Ukraine can find a way out of this mess. The longer the conflict drags on the more infrastructure is destroyed, relations between the two countries worsen, and the smaller Ukraine’s dwindling reserves get. What all this means is that the economic situation will continue to get worse as the military conflict drags on.

What’s next?

Recently, the Ukrainian government has begun talks with the IMF about a bailout/debt restructering. But what exactly can Ukraine do with that cash? It’s economy has shrunk since the end of the Cold War, so it’s hard to believe the money will be put to good use – instead used to simply keep the country afloat for a little longer.

Each problem Ukraine faces reinforces the others. The longer the conflict goes on, the more reserves Ukraine spends and the more its relationship with Russia is hurt. This sharp drop in the hryvnia could signal more trouble ahead for the beleaguered country. Unless the situation changes soon, Ukraine looks to be heading down a never-ending rabbit hole with little hope of escape.

Check out this piece for more information on Ukraine’s woes. Keep checking back for more information on both this conflict and other flash-points around the globe.

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