CURRENCY ASPECTS OF FINANCIAL SECURITY OF THE BANKING SYSTEM OF UKRAINE: REGULATORY PRIORITIES AND TRANSFORMATION OF CONTROL

Oleksandra Vasylchyshyn

doi:10.21303/2504-5571.2018.00656

Abstract

The article is devoted to the topical subject – the study of currency aspects of the financial security of the banking system of Ukraine, taking into account the threats of liberalization of cross-border capital transfer and currency regulation. The main objectives of the article are studying the main threats to the currency security of the banking system of Ukraine in the context of the transformation of currency control within the liberalization of currency relations. In particular, the study found that currency security is one of the main components of the financial security of the banking system, and exchange rate instability is one of the greatest threats to the effective functioning of Ukrainian banking institutions, taking into account the peculiarities of the national structure of financial assets and liabilities of business entities. As a result, it is found that the deterioration of the exchange rate stability leads to a revaluation of assets, the outflow of foreign currency deposits from banks, which leads to their loss and significant deterioration of financial security, while a decrease in the volume of gold and foreign exchange reserves directly affects the currency security of the state, in particular, and the economic in general. Based on the research results, proposals have been made to improve currency regulation and currency control, namely, amendments to the draft law should be made with regard to the administrative restriction of the dollarization level of deposits and credits, indicating the terms for reducing the dollarization rates of loans and deposits from 50 % to 20–25 %. The mechanism for such reduction in dollarization should be included in the instruments of the National Bank of Ukraine, namely, the norm of mandatory reservation for deposits in foreign currency should be 3–4 times higher than the reserve rate in the national currency, which will make foreign currency deposits "uninteresting" for banks, and therefore will lead to a reduction in the interest rate and, accordingly, reduce the desire to save in foreign currency. By dollarization of loans, the credit risk reservation ratio should also be significantly higher than in the national currency in order to demobilize banks for lending in foreign currency, an exception can only be for those enterprises that carry out foreign economic activity. In addition, lending to individuals for all types of loans in foreign currency should be banned, and the fact of such ban should be clearly spelled out in the Law on Currency. This will prevent the outflow of capital from the state and form a mechanism to reduce the scale of the shadow foreign exchange market as the main threats to the currency and financial security of the banking system of Ukraine.

Highlights

The globalization of international economic relations dictates its rules of interaction between countries
In our opinion, in this context, it is necessary to amend the draft law “On currency” in terms of administrative restrictions on the dollarization level of deposits and loans, indicating the time frame for reducing the dollarization rates of loans and deposits from 50 % to 20–25 %. The mechanism for such reduction in dollarization should be included in the instruments of the National Bank of Ukraine, namely, the norm of mandatory reservation for deposits in foreign currency should be 3–4 times higher than the reserve rate in the national currency, which will make foreign currency deposits “uninteresting” for banks, and will lead to a reduction in the interest rate and, reduce the desire to save in foreign currency
Today there is an urgent need to create a clear and understandable mechanism for all transboundary movement of capital outside Ukraine in order to prevent the outflow of foreign exchange from the interbank foreign exchange market and the banking system as a whole, which may lead to a significant reduction in its financial security

Summary

Introduction

The globalization of international economic relations dictates its rules of interaction between countries. In the sphere of currency regulation and control, this is expressed in the general trend towards a certain liberalization of the procedure for the implementation of current foreign exchange operations. Interstate and international treaties and agreements concerning the streamlining of cross-border foreign exchange transactions, as well as the need to prevent and mitigate the effects of possible future crisis in the monetary sphere, impose certain restrictions on the range of tools and techniques that can be used to achieve monetary policy objectives. The great importance of the international factor in the regulation of currency relations by the countries is due, first of all, to the growing interdependence and vulnerability of national economies in the context of the globalization of international economic relations and the high mobility of capital. That is why in the structure of national economic security an important role is assigned to monetary and financial instruments and the nature of their use

Objectives

Methods

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Discussion

Conclusion