Source: Reuters
- What’s happening?
Ukraine is actively considering replacing the U.S. dollar with the euro (Drop U.S. Dollar as EU) as its reference currency for the hryvnia, marking a potential shift in its monetary alignment. Central Bank Governor Andriy Pyshnyi confirmed the review, citing complex economic and geopolitical factors.
Why this shift now?
- Geopolitical realignment: Ukraine’s growing economic and defense ties with the European Union, especially amid Russia’s invasion and waning U.S. support, are driving the pivot.
- Trade fragmentation: The global economic order is splintering, and the dominance of the dollar is being re-evaluated globally.
- EU Accession Goals: As Ukraine eyes EU membership by 2030, aligning its currency framework with Europe is seen as a strategic step. Moldova has already switched its reference currency to the euro.
What does it mean for the hryvnia?
Since launching the hryvnia in 1996, Ukraine has relied on the dollar for foreign exchange (FX) stability.
- Post-2022 invasion, the hryvnia was firmly pegged to the dollar.
- In 2023, the peg shifted to a managed regime still referencing the dollar.
- Now, the euro could become the new benchmark, guiding FX interventions and exchange rate smoothing.
What’s at stake?
- A euro peg could deepen EU integration, promote trade, and improve investor confidence.
- However, shifting reserve strategies requires careful preparation amid war and fiscal pressure.
- Pyshnyi cautioned that benefits from such moves or a potential end to war will take time to materialize.
What’s the broader context?
- Dollar pressure: Under Trump’s new tariffs and geopolitical unpredictability, confidence in U.S. assets has dipped.
- Military aid volatility: Ukraine has faced interruptions in U.S. aid, pushing it closer to European security frameworks.
- Despite continued dollar dominance in global FX markets, Ukraine reports a moderate rise in euro-denominated transactions.
Financing & Forecasts
- Ukraine expects $55 billion in external funding in 2025 to support its war effort and build financial reserves.
- Aid is projected to decline to $17B in 2026 and $15B in 2027.
- Economic growth is forecasted at 3.7–3.9% over the next two years—contingent on conflict outcomes and EU integration progress.
Bottom line
Ukraine’s potential shift to the euro is more than monetary policy (Dollar as EU)—it’s a symbol of geopolitical reorientation. As Kyiv distances itself from U.S. volatility and doubles down on European integration, the hryvnia may soon carry a distinctly European weight.
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