Ukraine Central Bank moves from one crisis to another

One was thinking that during the pandemic phase, governments will let central banks function fairly autonomously. After all, the governments are caught up with several problems of their own and have little time to interfere in central bank affairs. Moreover, as most central banks are following highly easy monetary policies, the governments would be happy as they often intervene when central banks are following tight policies.

Given this, the case of National Bank of Ukraine (NBU) which is the country’s central bank is one of those exceptions.

NBU’s Governor Yakiv Smoli resigned amidst high drama last week on 1 July 2020. His resignation letter stated: “For a long time, the National Bank of Ukraine has been under systematic political pressure. This makes it impossible for me, as the Governor, to effectively carry out my duties as the head of the National Bank of Ukraine and interact with other government agencies”.

On 3-July, Ukrainian Parliament approved his resignation with 286 members voting in favor in a 450 member Parliament. Smoli defended his tenure in the Parliament saying he along with members of the NBU Board “have been a shield that has protected our technocratic and apolitical institution from the influence of political forces.” However, he was forced to resign due to relentless pressure from numerous court cases, public protests outside homes of Board officials etc. He added that his resignation does not imply NBU has lost its independence.  His resignation was a mark of protest that the red line between central bank and government is about to be crossed.

The Smoli resignation becomes even more intriguing as the Parliament noted his commendable performance in keeping inflation at 5% whereas it was highest in the world in 2015 at 272%! They also noted that macroeconomic and financial conditions have been stable. The question is why did he resign and allowed to go despite doing reasonably well in his short 2-year tenure?

Infact, none of this is really a surprise for those watching Ukraine central bank. This blog has written several times on the Ukraine central bank.

The story starts much earlier in Dec-2016. A Ukraine based bank named PrivatBank ran into trouble leading to government nationalizing the bank. NBU was in the centre of the the nationalization as the central bank’s investigation showed that the bank was under trouble due to fraud in the bank. Ukraine’s oligarch Ihor Kolomoyskyi who owned the bank was accused of the fraud worth USD 5.5 billion.  His assets were frozen in Kolomoyskyi appealed against the Nationalisation in the court. In an interesting twist, in 2019 the Court ruled that Nationalisaiton of PrivatBank was illegal. People accuse Kolomoyskyi of influencing the judiciary.

In all this, Kolomoyskyi ran a vicious campaign accusing NBU of cooking the books. He using his financial muscle organised political and people’s protests against the central bank. So much so, the predecessor to Governor Smoli – Valeria Gontareva – had to also resign amidst serious public protests. Gontareva was appointed as the Governor during the nationalization, she was seen as key to the decision.  Gontareva received coffins outside her home as threats!  Even after her resignation, she was personally attacked in London and her home in Ukraine was burnt.

The home arson act led the Board of NBU to term it as Terror and an attempt to “intimidate reformers, past and present, and to paralyze our activities, to silence us”.  

The NBU added it will not be silent. The central bank has shown a lot of courage amidst constant pressure from several parties. In 2019, they developed a webportal named Storm ( which has a dashboard which shows pressure points on the central bank and is updated every day. As of 6-Jul-2020 (at date of writing this article), the central bank is dealing with 32 political declarations, 14 oligarch declarations. 39 court decisions and 9 lawsuits! Central banks usually have dashboards on inflation, growth, financial stability and so on. This dashboard is totally of a different kind!

To sum up, the saga of Ukraine central bank has upped the friction game between central banks and governments. The central bank’s fight is not limited to government but with courts, oligarches and even public.

The Government has appointed Kateryna Rozhkova one of the Deputy Governors as the Acting Governor of the Central Bank. Smoli was also appointed as the Acting Governor after the resignation of Gontareva and then confirmed as the full-time Governor. It has to be seen whether Rozhkova will also be confirmed as a full-time Governor. In normal times, Rozhkova could have picked the adline from Hero Scooters and say “why should boys have all the fun”! But these are highly tough times. He onareob is that of a fire-fighter who has to fight multiple fires with a single hosepipe with hardly any water to extinguish the fires.


Gontareva responds to Smoli’s resignation

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