№ 2/2022

Fìnansi Ukr. 2022 (2): 58–71https://doi.org/10.33763/finukr2022.02.058

MONETARY POLICY

BERESLAVSKA Olena ¹, SHKLIAR Andrii ²

¹State Tax University
OrcID ID : https://orcid.org/0000-0001-8856-2478
²SI “Institute of Economics and Forecasting of the National Academy of Sciences of Ukraine"

Dollarization and its impact on the monetary policy effectiveness in Ukraine

The article considers the issues of dollarization, its types, manifestations and impact on the monetary sphere of the state. Monetary authorities in countries with economies in transformation have been trying for many years to find ways to reduce the level of dollarization resulting from distrust of the national currency and high inflation. The main disadvantages of dollarization are the formation of a bi-currency monetary system in the country, which cannot be managed by the central bank, and the reduction of monetary policy effectiveness due to distortions of the transmission mechanism, including its interest rate channel. Since foreign currency is issued outside the country, its value is determined not by regulation of the central bank's discount rate, but by interest rates on international capital markets. High levels of dollarization negatively affect the stability of the financial system, making it vulnerable to devaluation of external and internal shocks; contributes to the growth of inflation in moments of depreciation of the national currency, stimulates the growth of the shadow economy. Ukraine is characterized by financial dollarization, the level of which has been growing since 1994. At the same time, starting in 2015, the level of dollarization began to decline. According to the IMF calculation method, the level of financial dollarization in Ukraine in 2020 was 27.4%, and for 9 months of 2021 - 25.4%. However, the level of dollarization outside the banking system (cash market) remains significant, and its source is private remittances from abroad. In order to reduce the dollarization of the world, various measures, based on administrative and market methods and levers were used. Administrative measures were aimed at imposing bans, other measures – at creating conditions for increasing confidence in the national currency. International practice has shown that forcing economic agents to use only the national currency, which is distrusted, carries risks of capital outflow. Therefore, administrative restrictions should be combined with measures to reduce inflation and achieve macroeconomic stability. Dollarization is a difficult problem for Ukraine, which requires tackling the shadow economy, increasing the share of non-cash payments, improving the NBU's communication strategy to increase confidence in the banking system and to inform about currency risks, to form and develop markets, to hedge risk institutions and to maintain low inflation.

Keywords:dollarization, financial dollarization, efficiency of monetary policy, inflation, devaluation, exchange rate

JEL: E31, E52, E58, F31

BERESLAVSKA O. . Dollarization and its impact on the monetary policy effectiveness in Ukraine / O. . BERESLAVSKA, A. . SHKLIAR // Фінанси України. - 2022. - № 2. - C. 58-71.

Article original in Ukrainian (pp. 58 - 71)

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