Why inflation is a bank account’s deadliest foe

Fearing for her savings of 80 000 Ukrainian hryvnia in July of last year ($7200 at the time), Lisa, a public sector employee in Kiev, asked her bank to exchange it into US dollars. The bank replied that this was a bad idea and that she should keep her savings in hryvnia.

Since then, the hryvnia has more than halved in value against the greenback. Lisa still has 80 000 hryvnia in her account but in dollars that’s now only $3200.

“This is really bad and I don’t know what to do”, says Lisa with frustration written all over her face.

Her story is not unique and everyone with cash savings have been hit. People with the means to bank in other countries often choose to do so. Anna, a student from a wealthy family, has for several years done her banking in Poland where her savings are denominated in euros.

“I earn less than one percent interest but my money is safe. Sometimes Ukrainian banks don’t even give your money back so it is not safe for savings here”, she says.

Some win, others lose when a currency falls

Ukrainians from all walks of life have had to come to terms with the plummeting international purchasing power of the hryvnia. Some people do however benefit.

House rents are usually fixed in local currency whilst contracts are signed for a year at the time. For people with a dollar income such as web designers with international customers this is a boon. Their rents are actually falling relative to their income. This stands in sharp contrast to the vast majority of locals whom earn their income in hryvnia.

Still, this is only the beginning. The biggest price hikes will inevitably hit goods that are imported.The price of subway fares doubled from two to four hryvnia over night in mid February. On March the 4th McDonald’s raised the price of a Big Mac meal by 20% from 40 to 48 hryvnia. An extreme bargain viewed with western eyes at $1.96, but not for Kievan residents.

When a currency falls, the price of foreign products will inevitably rise in local currency terms. Gasoline prices at the pump were amongst the first to surge. Other imports are bound to follow suit when inventories are replenished as the sales price must reflect the higher cost of bringing the product in to the country.

Where the bottom is for the hryvnia is anyone’s guess. Until then, Ukrainians have few alternatives other than to stand idly by and watch the worsening terms of trade and the ensuing inflation eat away at their salaries, savings and quality of life.

Β 

Poland, Romania or Ukraine: Best Country to Holiday?

Password Reset
Please enter your e-mail address. You will receive a new password via e-mail.