Euro instead of the dollar: When and how does the National Bank plan to switch to the "main" currency?

The NBU stated at the beginning of the year that the transition from the dollar to the euro as the main currency peg is an inevitable process. This raised many questions, considering that most Ukrainians hold their savings in dollars and closely monitor its exchange rate. What changes might the transition to the euro bring for businesses and the population? This is discussed in an article by RBC-Ukraine journalist Dmitry Sidorov.

What the NBU Proposes

In the future, Ukraine should move towards pegging its national currency to the euro (currently, it is the US dollar) if it wants to become part of the European Union and have access to EU markets. This was announced on January 14 by the First Deputy Chairman of the National Bank, Ekaterina Rozhkova. "This is an unavoidable future, just like our membership in the European Union," she said during a broadcast on one of the national TV channels.

Currently, the NBU first calculates the exchange rate of the hryvnia against the dollar and then determines the rates of all other currencies based on their value against the dollar. For example, the NBU calculated that the exchange rate of the hryvnia to the dollar should be 41.5 hryvnias per dollar. At the same time, the dollar to euro exchange rate on international currency exchanges is around 0.95 euros per dollar. Therefore, 41.5 hryvnias equals 0.95 euros, which means one euro is 43.7 hryvnias. This is how the National Bank calculates the exchange rate for each currency, linking it to its value against the dollar. This is the role of the dollar as the main currency peg.

"In the future, a change in the currency that determines the exchange rate may occur... This currency could be the euro," said the NBU press service to RBC-Ukraine, noting that this does not mean abandoning the hryvnia in favor of the euro (as a means of payment), but rather changing the approach the NBU uses to calculate currency rates.

The NBU emphasized that Ukraine's advancement towards European integration provides grounds to at least raise the question of the feasibility of such a transition, and a potential further increase in the share of the euro in the currency market could make this question more relevant in the future.

"The National Bank has already started to study and develop possible approaches to this complex issue, which requires quality comprehensive preparation. Such changes are not a matter of short-term perspective," the NBU press service added.

Experts' Warnings

The share of the euro in export-import operations is increasing, says former advisor to the President of Ukraine on economic issues Oleg Ustenko. He agrees with the feasibility of a future transition to the euro as the determining currency. According to data from the State Customs Service, in 2024, the largest export volumes in monetary terms were to Poland (€4.7 billion), Spain (€2.9 billion), and Germany (€2.8 billion), while Ukraine imported most goods from China (€14.4 billion), Poland (€7 billion), and Germany (€5.4 billion). Thus, Ukraine's main trading partners, except for China, are EU countries. Additionally, assistance from the EU is also provided in euros.

Ukraine's Largest Trading Partners in 2024 (Infographic by RBC-Ukraine)

"Most of the currency that comes to Ukraine for 'Supporting the State Budget Deficit' is in euros. For 2025, we expect that about €30 billion will come from the EU to cover the budget deficit. It will again be in euros. Therefore, it would be reasonable for the National Bank to switch to currency formation based on the euro," Ustenko said in a comment to RBC-Ukraine. However, the expert believes that the timing chosen to discuss this issue is unfortunate.

"We currently see tension in the US regarding any currency other than the dollar. I don't think Ukraine's transition to the euro as the determining currency will be a risk factor, but still, it's not advisable to create any additional, even a little tension right now," the expert said, adding that Ukraine should wait for greater certainty regarding negotiations on the path to EU integration and relations with the US.

Economist and professor at the National University of Lviv Polytechnic Alexey Drugov expressed the opinion that today's statements from the NBU are more of a message for the future.

"The NBU is indicating that not today, not tomorrow, not by the end of this year, but only after a certain period of time will we move towards carrying out most operations in euros... This is a warning that at some point in the future we will do this," he told RBC-Ukraine.

In the expert's view, such a transition is possible no earlier than in three years. "Currently, we have a three-year budget planning, so everything is planned in dollars for the next three years. It is unlikely that it makes sense to change everything abruptly right now, as it would create significant problems in financial administration in the country. However, in about three years, we should have transitioned more to the euro," Drugov says.

The state budget is drawn up based on the dollar exchange rate, the NBU's gold and foreign currency reserves are denominated in dollars, a large share of these reserves also consists of dollar assets, and much of the statistics is maintained in US currency. Therefore, according to the expert, such a transition will require a long time.

Photo: NBU reserves are denominated in US dollars (freepik.com)

Even if such changes begin, several factors should be taken into account. According to information from acting Executive Director of the Independent Association of Banks of Ukraine Dmitry Glinski, Ukraine supplies a lot of products to the markets of North Africa, the Middle East, and East Asia, where the dollar dominates. The dollar accounts for two-thirds of receipts and half of payments in Ukraine's balance of payments, while for the euro, these figures are one-third of receipts and less than half of payments.

"The country mainly receives dollars, while we predominantly consume in euros, considering the significant trade balance deficit. Therefore, in our opinion, a gradual transition towards the euro seems reasonable, possibly with the use of intermediate dual-currency options for pegging the hryvnia," Glinski told RBC-Ukraine.

The National Bank should also take into account that the population traditionally keeps its savings in dollars. "In the structure of term deposits of individuals in foreign currency, 86% are in US dollars, while only 14% are in euros," added the representative of the Independent Association of Banks.

Business Opinions

The real sector also voiced its concerns. For example, the president of the "Ukrainian Grain Association," Nikolai Gorbachov, noted that most grain contracts are serviced in dollars.

"Currently, businesses would not strongly support such an initiative because over 90% of grain trade activities are conducted in dollars. This is more understandable for us," he said in a comment to RBC-Ukraine.

Nikolai Gorbachov added that grain exports from Ukraine to Europe occur in dollars, while agricultural companies import fertilizers, seeds, and petroleum products directly from producers in Europe in euros.

"This creates an imbalance. If Ukraine switched to euros, then we could both receive and pay in euros. As it stands, we receive dollars, convert them into euros, and then pay Europeans," he said, adding that there is no need to rush into transitioning to the euro as the determining currency.

Victoria Burdeyna, manager of the European Business Association committees, also pointed out potential issues for companies that have many contracts in dollars. "First of all, it is necessary to consider the currency risks for businesses that operate with US dollars. They may face additional currency fluctuations, which would require adaptation of hedging strategies. At the same time, companies that have entered into long-term agreements and transactions in dollars may require a revision of contract terms," she said in a comment to RBC-Ukraine.

The interviewee also noted the need to adapt accounting practices and ensure sufficient liquidity in euros on the currency market. She expressed hope for a transparent and gradual transition, as well as an open dialogue between businesses, the NBU, and the government to minimize possible risks.

"We will communicate this issue with the market; this decision has a complex nature and therefore requires quite extensive discussion, deep expertise, and analysis," said NBU head Andrey Pyshny in a comment to RBC-Ukraine.

Some companies have already switched to contracts in euros long ago. "For Carlsberg Ukraine, this transition is not new. Five years ago, the company shifted 90% of its transactions to euros," the company told RBC-Ukraine. They noted that before the full-scale war