Ukraine's fixed exchange rate and the underground market for dollars and euros : The Indicator from Planet Money How one Ukrainian is circumventing the government exchange rate to turn U.S. dollars into medicine for Ukrainians near the front lines.

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The cost of a dollar in Ukraine

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Kateryna Sporysh lives in Lviv and spends part of her time fundraising for medicines that she sends to people in the frontlines of the Ukraine war.

KATERYNA SPORYSH: ...Sixty, 80, 100...


Kateryna is counting euros she's raised from international donors on GoFundMe. When Kateryna goes to other countries like Germany, she withdraws her euros or dollars from ATMs, and then she brings the cash into Ukraine. To buy cheap medicines in Ukraine, she needs the local currency, the hryvnia. And to convert her dollars or euros into hryvnias, she sees two options - go through official channels through her banks, or she can use street currency dealers.

SPORYSH: (Non-English language spoken).

UNIDENTIFIED PERSON #1: (Non-English language spoken).

WOODS: With the street dealers, she can get a rate for her hryvnias that's about 10% better than the official rate.

SPORYSH: Two, three, four, five...

WOODS: Ten percent more hryvnias means 10% more medicine.

SPORYSH: This is very helpful because there are people who can survive thanks to this medicine.

WONG: The reason why Kateryna can get a better deal on the street says a lot about how money moves around the world. This is THE INDICATOR FROM PLANET MONEY. I'm Wailin Wong.

WOODS: And I'm Darian Woods. Today on the show, the underground market for Ukrainian currency. We learn about an emergency brake pulled on the Ukraine financial system and what this can teach us about exchange rate systems globally.


WOODS: Soon after Russia's full-scale invasion of Ukraine, Kateryna Sporysh's mother called her from Kyiv. Kateryna had already escaped to Lviv in the safer western part of Ukraine, but Kateryna's mother had been sitting in a cold basement with air raid sirens howling all day and all night. And so she told Kateryna she was going to flee Kyiv.

SPORYSH: The first thing I did, I went to the pharmacy.

WOODS: Kateryna's mother has hypertension.

SPORYSH: I went to the pharmacy to buy her blood pressure medicine because I understood she could forget this medicine at home.

WONG: When her mother joined Kateryna in Lviv, she couldn't help but think of other people in her mother's situation.

SPORYSH: I started thinking about millions of Ukrainians who didn't have access to medicine because of broken supply chains.

WONG: Kateryna had been working in Kyiv as a journalist for places like Forbes magazine, and this gave her some advantages.

SPORYSH: I needed to open a lot of doors. I needed to knock. I needed to push to get answer or to agree something.

WOODS: Have I tried their Facebook? Have I tried their LinkedIn? Have I tried calling them three times?

SPORYSH: Yeah, yeah. Can they read them? Can they read them? Hello. Hello.

WOODS: Kateryna's first month of fundraising got around $2,000. That meant she could send about 15 boxes full of blood pressure medicine, diabetes medication and asthma inhalers to Ukrainian regions close to the fighting.

WONG: And when Kateryna got money from other countries, she transferred the money she raised in the usual way through an online bank transfer. The exchange rate at the time was just under 30 hryvnias per U.S. dollar. And unlike in the U.S. and many other countries where the exchange rate changes every day, this official exchange rate had been held constant since the very start of the full-scale invasion. It had been fixed.

WOODS: That's because as Russian tanks and fighter planes started attacking, the Ukrainian central bank was worried about a run on their currency. Before the full-scale war, Ukraine's currency was floating just like in the U.S. When more people wanted hryvnias, the currency would get stronger, like if there was a boom in Ukrainian grain exports. And when more people were selling hryvnias, like to buy smartphones from other countries, the currency would get weaker. And so when Russia crossed the border, Ukraine's central bank was worried that everyday Ukrainians and businesses would rush to convert their hryvnias to dollars or euros, and a massive sell-off could mean the hryvnia would lose even more value in a vicious cycle as people lost confidence in it.

WONG: The Ukrainian central bank said, we will fix the exchange rate at just under 30 hryvnias for every U.S. dollar, so there's no need to buy up all our U.S. dollars. Your own exchange rate should be just as stable for now. Along with other financial restrictions, fixing the exchange rate was a kind of circuit breaker, and it also gave certainty to people who imported food and weapons and clothes into the country. They would know how many hryvnias they needed to pay for things in dollars.

WOODS: Imagine Ukraine's central bank has a vault with a big gate, and inside that vault are dollars and euros and other currencies. And this is called foreign exchange reserves. If there's extra demand from people wanting to convert their hryvnias to dollars, the Ukrainian central bank has to step in to keep the exchange rate at the fixed amount. To do this, the Ukrainian central bank sells its dollars from that vault and buys more hryvnias, and that will strengthen the hryvnia against the dollar.

WONG: But this approach has its problems. If the central bank has to do this too much, that vault might run out of dollars. And that's what started happening. Maria Repko is a deputy director for the Centre for Economic Strategy, a Ukrainian think tank.

MARIA REPKO: It succeeded for some time. Then in several months, the situation just got out of control. It was selling a huge amount of dollars from its currency reserves, like billions, just to keep the situation stable.

WONG: This came to a head in the middle of last year. Ukraine was using a lot of dollars and euros for weapons and supplies, and they were running out of this money. And so the central bank changed the amount at which they had fixed the hryvnia. Instead of $1 U.S. costing around 30 hryvnias, they moved it up to around 37 hryvnias. That's called a devaluation.

WOODS: Also, cracks were forming elsewhere. Another policy that the government had put in place at the start of the full-scale invasion was that you couldn't exchange your hryvnias for dollars or euros if it wasn't critical for the economy. So people found another way.

REPKO: People started to go on the street and try to buy dollars from different other sellers, like non-official sellers and so on and so forth. And the black market developed as it usually develops during the time of any restrictions.

WONG: These problems are one reason why Ukraine is likely to go back to a regular floating exchange rate once the country stabilizes. It would put less pressure on the central bank and allow the economy to adjust to supply and demand changes.

WOODS: In the meantime, Ukrainians on the street have been paying about 10% over the official exchange rate to get U.S. dollars fast, and that's benefitting Kateryna or rather the people she sends medicines to.

WONG: During a trip to visit her fiance's family in the U.S., Kateryna came up with a plan. She could take advantage of this discrepancy between the official exchange rate and the street rate. She had $2,000 U.S. in her GoFundMe account. She could withdraw those dollars from a Washington, D.C., ATM. And then the next task was to bring this over the border to Ukraine.

SPORYSH: I didn't want to put this money to my suitcase because last time it was lost. I just put it in the small purse with the documents.

WOODS: And then back in Lviv, Kateryna exchanged the money outside of official channels, but for a charitable cause. She got an extra $200 worth of medicines.

SPORYSH: My priority is helping more people. I want to use this money effectively. So this is very important because we help people to survive.

WONG: Kateryna now repeats this when she's visiting countries like Germany or has friends visiting Ukraine. She estimates that the money has helped 10,000 people since the full-scale war started last year. And a lot of the people she's helped send her videos to say thanks.


UNIDENTIFIED PERSON #2: (Non-English language spoken).

UNIDENTIFIED PERSON #3: (Non-English language spoken).

UNIDENTIFIED PERSON #4: (Non-English language spoken).

SPORYSH: I have videos and photos where the grandmas who are crying because my help is miracle to them, and I'm very happy seeing all of these photos, videos - yeah, really.


WOODS: A huge thanks to Joel Wasserman in Ukraine who put us in touch with Kateryna. This episode was produced by Brittany Cronin with engineering by Katherine Silva. It was fact-checked by Sierra Juarez. Viet Le is our senior producer. And Kate Concannon edits the show. THE INDICATOR is a production of NPR.

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