Andriy Pyshnyy: High-Level Conference for the Governors of the IMF
Constituency
Speech by Mr Andriy Pyshnyy, Governor of the National Bank of Ukraine, at the
HighLevel Conference for the Governors of the IMF Constituency on "Central Bank
Independence in a Changing World", organised by the National Bank of Belgium,
Brussels, 9 February 2024.
* * *
Dear colleagues,
First and foremost, I would like to thank Pierre [the Governor of the National Bank of
Belgium Pierre Wunsch] and his wonderful team for the opportunity to take part in this
conference and share the experience of the Ukrainian central bank.
I want to present for your professional judgment some conclusions made by myself and
the National Bank of Ukraine team over the past two years. These insights have been
shaped during the 716 days of the full-scale Russian war against Ukraine that takes
place in our country but influences the entire world.
On 24 February 2022, as Ukrainians were jolted awake by explosions, the global order
changed . This made us look at many things differently, including at the central bank's
mandate and the ways of its implementation.
I could tell a lot about the NBU's experience and our mandate at the times of war.
However, due to time constraints, I will focus only on key issues.
First, we faced the issue of security in a broad sense.
Our usual peaceful environment turned into the martial law reality at once. When our
armed forces defended the borders on land and in the air, the foremost task for the
NBU was to safeguard the functions of the national currency, guarantee uninterrupted
payments, and alleviate panic.
In the first hours of the full-scale war, the central bank initiated its action plan that was
prepared in advance. The NBU immediately fixed the exchange rate, imposed
necessary restrictions, and activated protocols for uninterrupted operation of the
banking system. Even in the midst of battle for Kyiv, people could use their payment
cards in shops, withdraw cash, and make transfers.
Hence, the first conclusion or insight I would like to share: in crises, we do not
rise to the level of our potential occasion; we fall to the level of our preparedness.
And the level of our preparedness will ultimately determine our ability to fulfill our
mandate.
Second, we faced the challenge of power terror and massive cyber-attacks.
Between October 2022 and March 2023, Russia launched 875 missiles and hundreds
of drones targeting critical energy infrastructure. Cities and villages suffered many
hours and even days without electricity and communication, and the looming threat of
week-long blackouts became a reality. What did it mean for us as a central bank? A
new task emerged: to ensure seamless operation of the banking system and
uninterrupted access to banking services under any conditions.
A wide-scale project POWER BANKING, implemented in cooperation with Ukrainian
banks, provided a solution. It consolidated over two thousands branches of different
banks into a single network. These branches were equipped with alternative power
sources, backup communication channels, had enhanced cash collection capacity,
additional staff, and a shared system of continuous operation protocols. Even during the
darkest and coldest winter days, people could conduct cash transactions or just charge
their phones and find warmth in these bank branches.
But POWER BANKING is more than a mere response to missile attacks. Once again,
we adopt a broader perspective, since a blackout may be caused by a cyber-attack or a
natural disaster. Our POWER BANKING protocols comprehensively address these
scenarios, and you will agree that they can happen anywhere.
Therefore, my second insight is this: a central bank must execute its mandate
under any conditions. The NBU has ingrained this principle into its DNA. In May
2023, we updated the NBU Strategy, broadening our mission statement. Same as
before, the NBU should ensure price and financial stability. However, we have
now made a commitment to fulfill this mandate under all conditions.
Third, spotlighting the sanction track became one of the survival conditions.
The matter of resources is essentially the matter of opportunities. For Ukraine it
signifies the ability to endure and eventually win. For Russia it represents the means to
continue its aggression and the global order destruction.
Sanctions help change the balance of power. Thus, their enhancement and ongoing
monitoring have been added to our list of tasks since financial companies are always a
part of this "supply chain".
We are taking all the necessary steps domestically, severing any connections of our
financial sector with Russia. We successfully nationalized Russian banking assets in
order to ensure financial stability. These actions mitigate the risks related to terrorist
attempts of Russia to target our financial system and to undermine our defense.
Additionally, we cooperate with our partners to strengthen international sanctions
pressure. It is unacceptable to turn a blind eye to the global impact of Russian war
against Ukraine.
Here is my third insight: sanctions are a crucial element of global policy. Central
banks are inevitably involved in their implementation and face associated
challenges.
Fourth, support of the defense effort became an integral part of our mandate
in the times of war.
In 2022, we made difficult yet necessary steps to provide short-term assistance in the
government's financing of defense expenses. The war caused unprecedented increase
in the budget needs.
The war cannot be put on hold. It is impossible to find sources of budget financing in a
couple of days. So, the NBU had to make a swift and sensible decision and resort to
monetary financing. Simultaneously, it had to develop a remediation plan and avoid
monetary financing in the future.
Cooperation between fiscal and monetary authorities is an integral element of such
plan. This matter is frequently discussed at global conferences. I've heard it
emphasized by our IMF and ECB colleagues.
We have gained some extraordinary experience.
Reboot of our relations amid the full-scale invasion allowed us to revive the domestic
debt market and avoid monetary financing in 2023. We successfully restored
confidence in the local currency, which eased pressure on the exchange rate and
prices. As a result, we effectively mitigated the risks of forced monetary financing. The
independence of the NBU played a crucial role in that.
As a result, the inflation that peaked at 27% in 2022, decreased to the pre-war inflation
target of 5%. We successfully halted the decline in economic activity and transitioned to
gradual recovery: last year, the GDP grew by more than 5% after nearly one-third
slump in 2022.
The unity of Ukrainian authorities and the mutual respect of both institutions' to each
other's mandates allowed us to prove our capability and raise the required finances. I
want to thank Ms Kristalina Georgieva for trust, support and leadership of the
International Monetary Fund that consolidated the donor coalition around Ukraine,
becoming its cornerstone. I hope, this collaboration will persist.
This year, the significance of international support and the consolidation of efforts will
not diminish; it will only intensify. The war continues.
Thus, my fourth insight: efficient cooperation with fiscal authorities and
international partners not only provides resources for the implementation of the
central bank mandate but also serves as a source of capacity.
And the last, the fifth point. It is crucial to develop and implement measures
to ensure steady recovery and post-war reconstruction.
This was clearly manifested in both internal policy and documents on cooperation with
our partners. While the first stage of our program with the IMF defined the key task as
"maintain macroeconomic, external, and financial stability, in order to strengthen
Ukraine's capacity on its way to victory", the second stage focuses on recovery and
reconstruction. These words are mentioned in the Memorandum with the IMF more
than 80 times.
To achieve this, it is important to switch from anti-crisis measures to forward-looking
and balanced policy. For this purpose, we moved from the fixed rate to ER managed
flexibility. We are cutting our policy rate. Gradually, we are easing the FX market
restrictions and moving towards our strategic objective: return to inflation targeting.
We are returning to normality, and I remain hopeful that we will continue on this path,
despite the ongoing war.
Strong economic recovery requires revival of lending. This is why we prepare our
Lending Revival Strategy taking into account war realities, including the need to boost
the defense of the country.
In conclusion, I would like to emphasize that Ukrainian experience shows, that
despite the fact that the mandate of a central bank is clearly defined, new
challenges make us look for the new ways to fulfill it, and these ways may vary.
And the most important insight from the two years of the full-scale war is that we,
as central bankers, should learn to take a broader perspective.
Today it is the 716th day of war in Ukraine. During this time, there were 978 air raid
alerts in Kyiv alone. The number and magnitude of challenges have grown, and their
impact extends beyond Ukraine. I am convinced, that everyone present at this
conference would agree.
Full-scale, cruel, destructive war of Russia against Ukraine aggravated the risks of
global war, geopolitical fragmentation and deglobalization. It has disrupted the
"metabolism" of the financial system. This challenge is global, and a risk to global
security and global macrofinancial stability, now and in the future.