Ukraine Considers Abandoning the U.S. Dollar

Ukraine is considering switching the reference currency for its currency, the hryvnia, from the American dollar to the euro, Reuters reported Thursday.

Why it matters: With the United States’ staggering debt, one of the only factors keeping its economy afloat is the dollar’s status as the world reserve currency. If enough countries abandon the dollar, it will financially cripple the U.S.

• In January, Moldova decided to switch its reference currency from the dollar to the euro.

Details: Reuters based its report off e-mail communications with Central Bank governor Andriy Pyshnyi. Some factors Pyshnyi cited for why Kyiv is considering this change:

• Ukraine wants to join the European Union.
• The “strengthening of the EU’s role in ensuring [Ukraine’s] defense capabilities”
• “Greater volatility in global markets”
• “The probability of global-trade fragmentation”

Pyshnyi said his bank’s oversight board began considering this possibility in February. These are the most direct comments a Ukrainian official has ever given concerning the subject.

[Ukraine’s] destiny is tied to Europe and European defense …. From that angle, all the economic and political aspirations are still going to be very much tied to the euro, so I think it makes sense for many reasons why they would want to consider this shift.
—Phoenix Kalen, global head of emerging markets research for Société Genéralé

Effects: Such a shift could anchor Ukraine’s economy to the EU and reduce dollar-related risks. The discussion highlights Ukraine’s bet on European integration over its reliance on the U.S., even in spite of the minerals deal the two nations just struck.

This move does have potential ripple effects on global currency dynamics. It is one factor among many that indicate the decline in the dollar’s attractiveness as the world’s reserve currency. This is a trend with deeply significant ramifications. To learn more, read our Trends article “Why the Trumpet Watches America’s Economic Collapse.”