The reasons for the hryvnia’s decline are simple and obvious — on the one hand, growing demand for dollars caused by instability and war; on the other, a growing supply of hryvnias caused by the NBU’s activities aimed at “supporting the banking system.” And all this against the backdrop of the state’s attempts to regulate currency circulation and foreign trade operations, which only intensifies the frenzy. Beneath the exchange offices, forgotten figures from the 90s have appeared — money changers — and this is a sure sign that things on the currency front are not going well.
Of course, this problem has many sides; in this column, I want to draw attention to just one aspect, which seems to me quite important.
Look at what’s happening. The state solves some of its problems (let’s leave aside what these problems are), and you pay the price. It is your prices on imported goods that rise (for example, on medicines), it is you who are forced to cut consumption and adapt in every way to the changed situation. It is you who are denied currency from your own account, it is you whose freedom of economic activity is restricted. Why? More precisely — for what? Have your actions become the cause of what’s happening? Why, then, are you suffering the consequences?
One can pose the question more broadly: are all these problems you experience in connection with exchange rate fluctuations objective? That is, are we dealing with the consequences of some irresistible forces, or is this an artificial phenomenon, one we could easily do without? To answer this question, let us examine what is happening with us, using the example of some hypothetical country that has no “national currency.” Actually, for our purposes, “national currency” is synonymous with “fiat” currency — one that is forcibly made monopolistic within the state’s territory, and the issuance of which is controlled by the central bank.
Of course, history was more complicated, and above all, the process of fiat money formation lasted not one day but more than a hundred years. So for our example, we will take a limiting case: a country where not only does a metallic standard operate, but there is also no fractional reserve banking (which is the main cause of the appearance of central banks and national currencies) — that is, no state-supported privilege allowing banks to issue receipts for gold in excess of what they actually hold in their vaults.
And so, for example, a war begins in such a country, and the panic it causes pushes people to the banks to withdraw their deposits. Like, for example, in the Netherlands during their war with France. And so? Generally, nothing happens. I mean, to the banks. The population withdraws its money and calmly walks away with it, while the banks continue operating. Why? Because they hold as much gold as they have issued receipts for. The hardships and deprivations of war, of course, do not go away, but the hardships and deprivations associated with this issue are not added to them.
Another story from our example. Some bank — or even several banks — collapses for one reason or another. A banker from another bank (like Gontareva) believes this bank or these banks must be saved at all costs. What can Gontareva do in such a situation? She can lend these banks her money. What will happen to the owners of money bearing the same portrait on the coin’s obverse when one bank lends another a sum and thereby saves it? Absolutely nothing, since the total money supply does not increase. Gontareva in this situation has no way to produce gold out of thin air, as she produces hryvnias in the case of a “national” currency. She will have to lend her already existing money in the system to the troubled bank. Even if this fails to save the bank and it goes bankrupt, then only those who had dealings with it and carelessly lent to it will suffer. The whole story ends there.
I am not even mentioning that there is no problem of “exchange rates” or changes in the price of imported goods in connection with exchange rate changes here, either. Gold is gold everywhere, no matter what the coins made from it are called.
Now let’s look at what is done here. Gontareva wants to save the banks. Good for her. What does she do? She does not give her own money for this. She simply prints new hryvnias — hryvnias that did not exist in the system. These hryvnias inevitably end up where their owners see opportunity for profit. In the case of war and instability, this means purchasing currency; in the case of peace and prosperity, it means various bubbles that will inevitably burst. And the point here is not about a “bad” Gontareva; the point is about the system, which not only allows this behavior but was created specifically to behave this way.
More money does not mean more wealth. Money is only an intermediary in the production of wealth. Therefore, if someone can create money out of thin air in their own pocket by a wave of the hand, then when they go to the store with it, wealth is simply redistributed in their favor. A national currency is the dream of alchemists, only here gold is produced not from mercury, but straight from thin air. And thanks to the central bank and the monopoly on the “national currency,” new money always appears in the pocket of the state, and it is the state that goes with it to the store. Roughly speaking, in the first case, when money is gold, Gontareva herself pays for the bankrupt bank; in the second case, this is done by all holders of hryvnias. Moreover, they pay not only through the decrease in the purchasing power of their money but also through suffering from the various restrictions and regulations with which the state tries to solve the problem it itself created. So when you hear about a “national” currency, remember that here, as in all other cases of “nationalization,” the opposite is taking place. Namely — privatization of income in favor of a group of people who constitute the “state,” and nationalization of costs. In terms of costs, the national currency is indeed national, to a considerable extent.