How Ukraine's banks keep cash deliveries moving in war : The Indicator from Planet Money The Russian invasion meant Ukraine's central bank had to work to avoid financial collapse. We hear from an economist and a Ukrainian bank CEO about how they're keeping money moving.

How Ukraine kept banks afloat and money flowing

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In a terrible war, you can kind of forget that millions of Ukrainians are still working their normal jobs. That's especially true in the majority of Ukraine, which is not under Russian occupation. In between curfews and air raid sirens, many Ukrainians are still buying coffees from cafes. They're still paying their phone and electricity bills. And to do that, they're using their banks.


And maybe surprisingly, Ukraine has managed to avoid a financial collapse despite being pummeled by Russian bombs. That's because there's been this mammoth effort to keep the banking system running during this war. To keep the money flowing requires radical actions from the top at Ukraine Central Bank all the way through to the worker who is loading up the ATMs with cash. And how Ukraine has managed this is by following the playbook from really any financial disaster.


WOODS: And I'm Darian Woods. Today on the show, an international economist tells us four steps to keep your banks running during a crisis. And a Ukrainian banker tells us how that's playing out on the ground while trying to keep his staff safe.

SERHII NAUMOV: I will not tell you many details. We cannot openly say many things.

WOODS: What we did learn after the break.


MA: To find out how Ukraine is keeping its banking system afloat, we spoke to Nicolas Veron. He's with the think tanks Bruegel and the Peterson Institute.

NICOLAS VERON: There's been a lot of surprises, I think, on all fronts since the war started. So there is - there's much to be humble about.

WOODS: And one surprise was in Ukraine's banking system. Ukraine is a fairly new democracy, and it's been dogged by these episodes of really high inflation. Several years ago, the country did reform its monetary system and it got inflation under control. But then Russian forces, a few months ago, started building up along the Ukrainian border. So you can imagine, you know, on top of how dangerous the situation was, financially, Ukrainians would have been feeling a little on edge and ready to take their money out of the bank.

VERON: It is completely rational at an individual point of view. It's also destabilizing at the collective point of view. So that's what economists or game theorists call a collective action problem.

MA: A collective action problem. What's right for each individual person is terrible for the economy at large. And in this case, that means a lot of people converting their savings into dollars and euros from the local Ukrainian currency, the hryvnia. Which is, you know, understandable because some people might be afraid of the currency collapsing.

WOODS: Yeah, the hryvnia had been getting less and less valuable in the last several months in the lead up to the war. Also, all that demand for cash withdrawals is a really big problem for banks. So when you have a bank account, it has - I don't know - $5,000 in it, the bank doesn't actually have those $5,000 in bills in its vault. It's already lending most of your money out.

VERON: Kind of a stampede, a collective dynamic that would become completely uncontrollable and highly destabilizing. And so to avoid the stampede, you say just, you know, people cannot move.

MA: And so the central bank is going to try and essentially stem the flow of money out of the country. This is the first of four actions a central bank can take in a crisis, which we're going to call a freeze-frame. It's like hitting the pause button on a video game. It gives a central bank time to scramble, get its house in order and temporarily try and stop a panic from spiraling out of control. And the way Ukraine's central bank did that within hours of the Russian invasion was, one, by fixing the exchange rate and also by using these things called capital controls.

WOODS: Capital controls meant most people couldn't convert hryvnias to dollars or euros. You weren't even allowed to send money to your PayPal account. And fixing the exchange rate meant that the few transactions that were allowed, the government made these specific exchange rates that were frozen in time that couldn't change with any market forces.

VERON: And that's what had been discovered by the refugees, especially, who came to Europe with, you know, banknotes, stashes of hryvnia but have found it very difficult to exchange them for euros or dollars.

MA: Refugees not being able to convert much of their savings into local currency is one of the reasons capital controls cannot last forever. They start to create other problems. And just like with a paused video game, eventually, you're going to want to restart. And so in the meantime, the central bank needs to bolster the banking system. And that's action No. 2 - phone a friend.

WOODS: Specifically, Poland - on the same day of the invasion, Ukraine signed an agreement with Poland saying that they could swap about a billion dollars' worth of Ukrainian hryvnia for the Polish currency at an agreed rate. And that is a huge help because it allows Ukraine to pay other countries in a more stable currency.

MA: The other friend was the International Monetary Fund. At its heart, it's a bank for countries in financial trouble. The IMF gave Ukraine a no-strings-attached $1.4 billion loan in early March.

VERON: That was disbursed immediately to help the Ukrainian government with their urgent spending needs that the IMF very euphemistically puts it.


WOODS: Some of those urgent needs were part of the third step that can be used to stem a financial crisis. Step 3 - load them up; lend banks a lot of money for any withdrawals they need. The central bank said it would loan banks an unlimited amount of hryvnia, Ukrainian cash, whenever people wanted to withdraw it. And by announcing this policy that Ukraine's banks would have a way to make good on any cash needs, this was a way to calm everybody down and avoid a bank run.

MA: But to convince everyone the cash will actually be there when you need it, you need the help of the retail banks. And that's step No. 4 - cash out.

NAUMOV: It is really difficult to deliver cash.

WOODS: This is Serhii Naumov, the CEO of the Ukraine's second largest bank, Oschadbank.

NAUMOV: On the road, you will for sure be under fire. This is very dangerous.

MA: When we spoke to Serhii, he was in a home office in the western part of Ukraine with a blue and gold Ukrainian flag pinned behind him on the wall.

WOODS: Serhii's staff have come up with all kinds of ways to keep safe when delivering cash to ATMs and bank branches. And Serhii didn't want to give exact details about how his staff might be finding safer times or safer routes to travel or maybe even using different vehicles. But he did say this.

NAUMOV: Our people there show that they are really brave. In some cases (laughter), they do things like a hero, trying to transfer cash if it is not possible, even by using the - some rivers stopped the boat (ph) - in order to bring money to allow people to get payments.

MA: They used a boat to cross the river because the bridge had been bombed by Russian forces. I mean, that's pretty impressive.

WOODS: Yeah, that's thinking on your feet. It's pretty amazing.

MA: Yeah, yeah. But ultimately, Serhii says he has an even bigger worry than getting cash to banks. He's worried about his staff. In some towns, he says, his bank has started to evacuate employees, but they haven't been able to get everyone out.

NAUMOV: Sometimes people, they don't want even leave in some cases. And they are still working to the final end, you know?

WOODS: Yeah. I mean, it is a devastating situation at the moment. I mean, how is that for you personally?

NAUMOV: I mean, who is prepared for such this scale of war? But together with team, with people, with support, I mean, we are working. We are working, and it is not easy, but this is our reality. We have to work.

MA: So far, Ukraine has not faced financial freefall, even while fighting this devastating war. This is the big surprise Nicolas was talking about.

VERON: We're discovering the reality of this commitment of Ukrainians to their national idea, which takes many form on the battlefront, but also in the financial world.

WOODS: And while the future is anyone's guess, the country's financial resilience, at least for now, is a testament to the fast action from officials at Ukraine's central bank, from Serhii at Oschadbank and from Serhii's delivery drivers improvising a cash delivery system along a river somewhere in Ukraine.


WOODS: We want to thank Joel Wasserman. He's an English teacher in Ukraine who helped connect us with Serhii. And we also want to say hi to our students, INDICATOR listeners Anna M. (ph), Anna K. (ph), Alena (ph), Alexy (ph) and Serhii. We're wishing you all the best.


MA: This show was produced by Jamila Huxtable and Nikki Ouellet with engineering by Isaac Rodrigues. It was fact-checked by Corey Bridges. Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.


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