Yakiv Smolii: Resignation speech
Resignation speech by Mr Yakiv Smolii, Governor of the National Bank of Ukraine, at the
Verkhovna Rada of Ukraine (Parliament), Kyiv, 3 July 2020.
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Dear Members of Parliament,
As the NBU has long been under systematic political pressure, I have made a difficult but
necessary decision to resign.
For months, the central bank has been pressurized to make decisions that are economically
unsound, that focus on short-term, easy "victories," and that could take a tremendous toll on the
Ukrainian economy and people in the long run.
As governor, I have been safeguarding the NBU's institutional capacity for more than two years.
Together with the members of the NBU Board, we have been a shield that has protected our
technocratic and apolitical institution from the influence of political forces. Over the past year, this
shield has come under unrelenting pressure to give in. That includes pressure in courts, paid
rallies at Instytutska Street and near the Board members' homes, information attacks based on
manipulation and lies, unfounded political assessments of the NBU's policy and of my actions as
governor, and use of the NBU Council to incite a corporate conflict within the central bank. All
these have been links in the same chain.
This has also hampered the efficient operation of the central bank, as it does not operate out of
an island. Despite attempts by some to equate the NBU's independence with the desire to
distance itself from other public authorities, the NBU does not actually work in isolation. Neither
do the economy and financial markets, which depend not only on the NBU's policies, but also on
the ability of all public institutions to find common ground. We at the NBU have also been striving
to find it.
However, pressure is the antithesis of effective dialogue. A conversation in which one party
speaks professionally of economics and finance while the other is concerned solely with political
gain is doomed to fail.
Does my resignation imply that the NBU has lost its independence? Not at all.
My resignation comes as a protest. It is a signal and a warning that a red line is about to be
crossed. As I step down as governor, I seek to warn politicians against further attempts to
undermine the institutional foundations of the Ukrainian central bank. At this very moment, the
NBU Board and several thousand top-of-the-line professionals continue to work at the NBU to
promote the macroeconomic and financial stability of Ukraine and the institutional capacity of its
central bank. However, it is crucial that their work goes on uninterrupted. It is imperative that the
president, government, and political forces finally begin to work effectively with the central bank.
After all, the NBU has made tremendous efforts to speed up the development of the
economy and financial markets and to advance the welfare of all Ukrainians, and can do a
lot more if not interfered with.
Let me focus only on what has been accomplished during my term as governor since March
2018.
We have finally curbed inflation. Every year, we broke our own records in terms of
bringing inflation closer to a level that is optimal for the economy. In 2018, inflation stood at
9.8%. In 2019, it was down to 4.1%. Through its consistent monetary policy, the NBU has
achieved an inflation target of 5% ± 1 pp sooner than expected, and inflation has since
remained low. Our ability to be consistent in maintaining price stability in the face of political
cycles was widely recognized by the international community last year, when the NBU
received the GlobalMarkets award.
For the first time since Ukraine gained independence, the key policy rate has been
Two years ago, when the Parliament appointed me to lead the NBU, the
reduced to 6%.
key policy rate stood at 17%. Today the central bank pursues a stimulating monetary policy
aimed at reviving economic growth. But we have not stopped there. We have introduced
completely new tools to support the economy. Those include refinancing loans for banks for
up to five years, an interest rate swap for banks, and an FX swap facility with international
institutions.
Yes, it will be some time before low
We have made single-digit loan rates a reality.
inflation and the low key policy rate have their full impact on the cost of debt. But it will
definitely happen. Of course, if creditors' rights were better protected, it would happen
sooner, but this is beyond the NBU's purview.
We have strictly adhered to a market-driven, flexible exchange rate regime, while at
Moreover, we have worked to develop
the same time ensuring that the hryvnia is stable.
the FX market. As a result, today the exchange rate is set transparently on leading
international platforms, where all players participate anonymously.
We have come under criticism for strengthening the hryvnia last year. Those criticizing us said
that the NBU should have been more active in the FX market, when in fact the NBU was active
enough that last year alone it added to international reserves a record USD 8 billion, having
purchased it in the FX market. Yes, if we had bought more dollars, we would not have heard
complaints from exporters. But we would have heard complaints from importers and, most
important, from ordinary people who earn and spend hryvnias. Therefore, we kept the balance
and, as befits a central bank, pursued a neutral policy, rather than playing into the hands of
individual market participants.
Another category in which the NBU set a new record every year is international
reserves. This time we hit a new high. While I was in office, Ukraine's financial safety
cushion increased by USD 10 billion, from USD 18 to USD 28 billion.
Last year, Ukraine was popular among international investors. Although this provided good
financial support to the government, this was used to criticize the central bank. At the same time,
our critics ignored the fact that international reserves grew, not least due to foreign exchange
inflows from nonresidents. This enabled us to overcome, reasonably painlessly and quickly, the
FX market turbulence in March caused by the coronavirus pandemic.
This was
In 2019, the NBU embarked on a large-scale liberalization of the FX market.
a truly revolutionary event, for which Ukrainian businesses and households had been waiting
for a quarter of a century. The NBU has already lifted about 40 FX restrictions, which had for
years hampered business development and investment inflows, while also limiting the rights
of Ukrainians to freely engage in FX transactions.
The banking system is healthy, highly liquid, and profitable. Since November 2018, not
a single bank has been removed from the market. The general public knows who owns each
and every bank. This is reviving confidence in the banking sector. This is evidenced by
deposit growth - since the start of 2018 hryvnia household deposits have risen by
one-andhalf times.
Moreover, thanks to years of continuous preparation of the banks for potential problems, the
banking system entered the coronavirus crisis stronger than ever. It is now an outpost of financial
stability and a lifesaver for the economy.
Cashless payments are gradually becoming commonplace in Ukraine. Thanks to the
numerous initiatives the NBU launched while I was in office, the share of cashless payments
among all transactions involving payment cards increased from 39% to 55%.
The NBU has become even more transparent and open. The NBU's current policy is
based on a dialogue with banks and nonbank financial institutions, businesses, the expert
community, the international community, the media, and our other partners and clients. The
NBU's achievements were recognized by the international professional financial community
through a prestigious award from the Central Banking Awards, in the category of
transparency.
All these achievements could easily be reversed. It is much easier to take a step back than
the steps forward that it took us years to make. I call on you not to let this happen! Let the NBU
retain the achievements of previous reforms and go on to new ones.
The NBU has a lot of work ahead of it. Don't forget that the coronavirus crisis is continuing.
We need to maintain financial stability and help Ukraine get back on the track to economic
growth, without provoking a spike in prices.
We need to successfully complete what we started. This includes completing FX liberalization,
while not undermining macrofinancial stability with hasty decisions. We have to make the market
of nonbank financial services, over which the NBU became a regulator just the day before
yesterday, healthy, transparent, customer-oriented and confidence-inspiring. We have to protect
the rights of consumers of financial services and enhance financial literacy. The NBU received a
mandate for this at the beginning of the current year. We have to make financial services more
accessible, and create conducive conditions for the development of innovations in the financial
sector. All of that, and many other things, are envisaged by the NBU's Strategy for the
Development of the Financial Sector until 2025. This requires five years of work, if not more.
Finally, I would like to thank all NBU employees and all our partners and clients who followed the
path of reforms with us.
These are financial market participants, businesses, and the expert and scientific
communities. Our discussions gave rise to the proper decisions, while your support inspired
us to keep going.
I thank all of the NBU's like-minded people - MPs and colleagues in other government
institutions who united with the NBU to promote reform.
I'd also like to thank the NBU's international partners and colleagues from other central
banks for your support that went beyond financial assistance. First of all, you gave us
knowledge and faith in ourselves.
I'd also like to thank journalists who tirelessly helped the NBU become more transparent and
easier to understand.
I'm infinitely grateful to the whole NBU team for providing support. All of the NBU's
achievements are our joint achievements.
I thank all Ukrainians who trust in the professional ability of the NBU. Confidence in a central
bank is the best recognition of its achievements. I'm proud that the NBU has this confidence.
I leave the NBU as an integrated institution that has a strategic vision, well-established
processes, a strong professional team, and a good reputation among the world's leading central
banks and the international community.
I'm leaving with my head held high. And I leave the NBU under your responsibility.