Currency black market: the extent of the problem

The Ukrainian economy is largely dollarized. This complicates monetary policy and reduces the potential amount of funds available for investment. In 2014-2015, due to a surge in inflation and a weakening of the hryvnia against most world currencies, the demand for foreign currency increased significantly. The subsequent introduction of harsh official restrictions on trade in foreign currency led to a spike of “black market” foreign exchange transactions, which have become a blind zone for official statistics.

According to official data of the National Bank of Ukraine (NBU), in 2013 the population bought on average $1601 million per month from banks. In 2014, when the first currency restrictions were introduced this amount was reduced to $669 million. In 2015, when the restrictions became stricter, this figure fell to only $57 million (or 3.6% of the 2013 level). Officially, the amount of foreign currency purchases declined almost 30 times in two years. How does this official statistic correspond with the realities of the backdrop of the financial crisis, devaluation and several times increase in the number of street currency exchange offices?

To estimate the true dynamics of the currency market, including the “black market” the CES made two mathematical models. The main mathematical assumption: before a significant increase in demand for foreign currency in 2014, there were stable connections between some monetary indicators. Those connections continued to operate in 2014-2015 – during a significant increase in the cash “black market”. Therefore, based on the dynamics of these indicators, we can assess the actual volume of the informal exchange market.