On May 24, one of the Ukrainian media published an interview with the former head of the NBU, Valeria Gontareva, in which she harshly criticized the regulator’s monetary and exchange rate policies during a full-scale war, calling the work of the National Bank “terrible.”
It is difficult to suspect the author of these lines of excessive sympathy for the actions of the NBU, including during the war. For years, my colleagues from the Growford Institute and I have been trying to reach out to the regulator in order to bring its monetary policy closer to the needs of the entire economy, and not just its financial sector. Unfortunately, in most cases the National Bank refuses to accept constructive criticism and suggestions.
But an elementary sense of justice forces us to respond to criticism from Ms. Gontareva. Despite the fact that the NBU itself and some independent experts have already done this, there are still several important points worth emphasizing.
The entire set of accusations against the National Bank is constructed using the classic method of propaganda - half-truths: the interview contains a large number of reliable facts, from which the professor at the London School of Economics draws manipulative or outright false conclusions. The logical reaction to such manipulation is embarrassment.
A significant part of Ms. Gontareva’s criticism concerns the regulator’s exchange rate policy. In her opinion, the NBU has maintained a fixed exchange rate for too long and is not liberalizing the foreign exchange market quickly enough, so the hryvnia is overvalued. In other words, the former Head of the NBU criticizes the National Bank for maintaining relative exchange rate stability and publicly (!) calls for a greater depreciation of the hryvnia, which actually provokes devaluation expectations.
It is very strange that a person who headed the NBU for almost four years does not remember or ignores the content of Article 99 of the Constitution of Ukraine, where it is written in black and white that “ensuring the stability of the monetary unit is the main function of the central bank of the state - the National Bank of Ukraine.”
Countries sometimes resort to so-called competitive devaluation (the deliberate depreciation of their own currency) to stimulate exports and limit imports. This is usually done without public announcements, since such actions are interpreted as a currency war. However, deliberately devaluing one's own currency in a situation where exports are limited by security and political factors, and the country imports a large number of critical goods, is, to put it mildly, not very logical.
It seems that Ms. Gontareva is still in search of the equilibrium (equilibrium exchange rate), which led to the largest devaluation surge in the history of the hryvnia in the first quarter of 2015. It is worth recalling that the immediate consequence of such “searches” was the emergence of a devaluation-inflationary spiral and the emptying of grocery store shelves under the influence of panic.
The exchange rate policy of the NBU under the leadership of Valeria Gontareva was rather critically assessed by two convocations of the NBU Council (in particular here and here), which makes its advice in this area very questionable.
What can we say if Mrs. Gontareva doesn’t even remember that at the beginning of a full-scale war the exchange rate was fixed at 29.25 UAH/USD. (and not 27-28, which is mentioned in the interview). Obviously, in order to better feel these things, you need to be directly in the country whose politics you want to influence.
The assessments of the former head of the National Bank regarding the regulator’s interest rate policy are no less contradictory.
On the one hand, Ms. Valeria states that the high discount rate causes excessive expenses on certificates of deposit and government bonds, which generates record profits for banks. And it is impossible to argue with such a statement. Moreover, we wrote about these risks not in 2024, but on the very day when the NBU raised the discount rate from 10% to 25%.
But the most interesting thing is that the former head of the NBU considers the sharp increase in the discount rate to 25% in 2022, which caused a set of problems in the field of public finances and blocked lending outside government programs, to be correct! In her opinion, the National Bank was simply late in lowering the discount rate.
In fact, Ms. Gontareva hints that the NBU should have acted with the discount rate approximately in the same way as the central bank of the aggressor country did, which, after a full-scale invasion, raised the rate from 9.5% to 20%, but quickly reduced it to the level of 7.5 % (however, later the rate increased again to 16%).
Valeria Gontareva does not consider the option in which the discount rate could remain unchanged at 10% (not to mention the possibility of reducing it). And this is natural, since it was under her leadership that the National Bank switched to an inflation targeting regime, the defining feature of which, as implemented by the NBU, was the so-called policy of expensive money (high rates).
This policy received formalization in the spring of 2016, when in the Regulations on the Fundamentals of the NBU Interest Policy, the discount rate was linked to the rate on certificates of deposit. Subsequently, the so-called design of monetary policy underwent certain cosmetic changes, but in fundamental aspects the whole design still “works”.
Therefore, in a certain sense, all subsequent Chairmen of the NBU were and are faithful successors of the work of Valeria Gontareva.
All of the above-mentioned contradictions devalue the truly constructive proposals of the former head of the NBU, in particular, on the advisability of restructuring the government bonds portfolio owned by the NBU (with a decrease in the nominal yield of bonds) and using the potential of banks to strengthen the country’s defense capability.
The recipe for success here is simple: in order to be heard, Ms. Gontareva should start not by criticizing her ideological followers, but by admitting her own mistakes as head of the NBU.
The Board of the National Bank announced its official position regarding the statements of Valeria Gontareva, in which “relying solely on numbers, facts and the assessment of international partners” once again repeated the same mantra about macro-financial stability, which the former head of the NBU mentioned in a sarcastic manner in her interview. According to the NBU Board, its advice is harmful, and its implementation would most likely lead to a large-scale currency crisis.
In addition, the NBU Board simultaneously called “pseudo-experts” everyone who criticizes it for excessive expenses on transactions with certificates of deposit, which, by the way, have reached UAH 232 billion since 2015 (including during the great war - 166 billion UAH).
The irony is that even this unacceptable format of communication with society is the direct legacy of Valeria Gontareva at the head of the NBU. Suffice it to recall how one of her deputies publicly called “demons” all those who disagreed with his bizarre idea of what the civil service should be (at the same time, he considered himself an “angel”).
However, much more interesting than the official position of the Board was the reaction of the current Chairman of the NBU, Andrei Pyshny, voiced on the same information resource as the scandalous interview with Mrs. Gontareva.
Explaining the logic of the NBU’s actions, Mr. Pyshny noted, in particular: “The law determined that our first mandate is to ensure price stability, exchange rate stability, and financial stability; and, subject to the previous two, support for economic development.”
What is important in this quote is that representatives of the National Bank have not spoken about “exchange rate stability” in the context of the legislatively defined goals of the NBU (!) for many years, in fact, since the time when it was headed by Valeria Gontareva. And if this is not a reservation, then we are talking about a very important change in the National Bank’s interpretation of its main constitutional function. And this cannot but rejoice.
It is disappointing that today the NBU continues to pay banks 16.5% per annum on three-month certificates of deposit and 13.5% on overnight certificates of deposit, while the annual inflation rate is 3.2%. In absolute terms, this is about 7 billion UAH per month.
And let the National Bank call those who disagree with its policy “pseudo-experts” as much as they want, one day they will have to answer for such an attraction of unprecedented generosity (especially during the war).
