Currency Regulation

In 1992, Ukraine introduced as its temporary currency the karbovanets (commonly referred to as the "coupon"), which resulted in Ukraine effectively ceasing to be a member of the rouble zone of the former Soviet Union. It was anticipated that after several announcements a new currency, the "hryvnia" will finally be introduced in 1997.

In March 1993, the Cabinet of Ministers of Ukraine published three decrees concerning currency regulation in Ukraine:
(i) Decree No. 1593, "On the System of Currency Regulations and Currency Control";
(ii) Decree No. 1693, "On Provisional Procedures for the Use of Foreign Currency Earnings"; and
(iii) Decree No. 1793, "On the Procedure for Settling Accounts in Foreign Currency" (together the "Currency Decrees"). Decree No. 1793 has since been replaced by the Law of Ukraine "On the Procedure for Settling Accounts in Foreign Currency", adopted in November 1994.

In addition, the National Bank of Ukraine ("NBU") has issued several instructions and regulations which address a number of the issues covered in the Currency Decrees. A new draft law on currency regulation is currently being debated by Parliament and is expected to be adopted with the introduction of the new national currency, the hryvnia.

The Currency Decrees are structured around the general principle that Ukrainian currency is the only lawful form of payment on the territory of Ukraine which may be accepted without limitation for the settlement of debts and obligations. Accordingly, Article 5 (4)(d) of the Decree provides that an individual license must be obtained from the National Bank of Ukraine in order to use foreign currency on the territory of Ukraine as a means of payment.

As a general exception to the foregoing principle, Article 7 of the Decree No. 15-93 provides that all commercial transactions between a resident and non-resident in the sphere of `trade turnover' (torhovelniy oborot) must be carried out in foreign convertible currency and only through authorized banking institutions (banks registered on the territory of Ukraine). As such, a non-resident wishing to carry out commercial transactions within the scope of `trade turnover' in local currency on the territory of Ukraine would need to apply for an individual license from the National Bank of Ukraine.

The Currency Decrees provide that individual licenses have to be obtained from the NBU for the carrying out, inter alia, of the following operations:
(i) hard currency transactions on the territory of Ukraine between residents (as of August 1, 1995 such licenses are no longer available for cash transactions);
(ii) use of hard currency on the territory of Ukraine as a form of security;
(iii) opening by a resident of bank accounts abroad;
(iv) making of investments abroad by a resident or, except in the event of inheritance, the acquisition of shares or an ownership interest by a resident in a non-Ukrainian legal entity;
(v) obtaining or granting of loans in hard currency by a resident if the amount of the loan is in excess of minimum levels established by the NBU;
(vi) making hard currency payments from Ukraine abroad (with the exception of instances listed in the following paragraph).

Individual licenses are not required, inter alia, for the following transactions:
(i) payments abroad in hard currency which are carried out by residents in order to fulfil obligations in such currency before non-residents in connection with payment for goods, services, works, intellectual property rights and other property rights;
(ii) payments abroad in hard currency made in the form of interest payments on loans and profits from foreign investments;
(iii) transfer, upon the termination of investment activities, of hard currency from Ukraine which had been previously invested in Ukraine.

According to a Resolution of the Board of National Bank of Ukraine dated May 16, 1995, the use of foreign currency for cash payments on the territory of Ukraine was prohibited as of August 1, 1995. Unless otherwise provided in the individual licence, the obtaining of an individual licence by one of the parties to a currency operation means that permission for the execution of such operation has also been granted to the other party to the transaction.

In addition, in early 1994, the NBU commenced controlled auctions for foreign currencies. These measures created tremendous distortions in the Ukrainian currency market and resulted in a significant spread between the official and "black market" rate for the Ukrainian currency.

Presidential decrees and NBU decisions in late 1994 resulted in the reopening of the UICEX, the abolishment of the currency tender committee and the NBU auctions and the establishment of an official exchange rate which is determined on the basis of the rate fixed at the previous UICEX auction.

In 2005 the forced conversion of foreign currency revenues into hryvnia was abolished. All transactions are carried out at the rate established at the Ukrainian Interbank Currency Exchange (UICEX).