The opening of the “printing press” threatens to dollarize the economy and hyperinflation. The NBU showed examples of other countries.
The National Bank once again complained about the practice of printing money that started in Ukraine after the Russian invasion.
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The central bank recalled that this practice leads to hyperinflation, significant dollarization of the economy, and in some cases, the loss of financial freedom.
In this regard, the NBU cited the experience of other countries that used this practice during armed conflicts and wars. At the same time, two main patterns stand out: the temporary fixing of the exchange rate was an effective measure to overcome the crisis, while the large-scale monetization of the budget deficit was not.
“Large-scale monetization significantly increases the risk of a jump in non-linear inflation and some other negative effects,” the regulator noted.
As an example, the experience of such countries is given:
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Germany (inflation in October 1923 – 29500% m / m),
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Austria (129% m / m in August 1922),
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Poland (275% m / m in October 1923),
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South Korea during the Korean War (213% YoY in 1951),
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Serbia after the collapse of Yugoslavia (1.16 × 1014% y/y in January 1994),
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Israel after the Lebanese war (480 in November 1984),
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Croatia (1890% YoY in September 1993).
The NBU also reports on what needs to be done to stabilize the situation. In particular, a strict and independent fiscal policy, fiscal consolidation and the use of market instruments to fill the budget are needed.
“One of the most successful was Israel’s stabilization program, which made it possible to reduce annual inflation from 480% to 18% in 1985-1986, caused by military operations, previous government populist policies and deficit financing. Subsequently thus, in the 1990s, Israel was able to bring inflation to a single-digit level (5.4% at the end of 1998). Croatia, through similar measures, was able to slow down inflation from 1839% in October 1993 to 4 % in October 1994,” the NBU said.
The central bank also noted that Ukraine faces additional challenges, as the war is taking place against the backdrop of a record rise in global inflation, worsening global financial conditions and a decrease in investors’ appetite for risks.
As you know, since the beginning of the war, the NBU has already printed 255 billion hryvnias to finance the budget.
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Source: korrespondent
I am Dylan Hudson, a dedicated and experienced journalist in the news industry. I have been working for Buna Times, as an author since 2018. My expertise lies in covering sports sections of the website and providing readers with reliable information on current sporting events.