By Balazs Koranyi and Jan Strupczewski
FRANKFURT/VERSAILLES – The European Central Bank is working on a financial facility to let millions of Ukrainian refugees convert their savings into hard currency, to help them make a new start in Europe as they flee war at home, three sources with direct knowledge said.
Over two million people have fled Ukraine since Russia’s shock invasion last month and their numbers could swell to over five million within weeks.
Many of them are struggling to buy even basic necessities as their savings in hryvnia are non-convertible across most of Europe, meaning they have no means to exchange them at reasonable rates. That in turn leaves them prey to unscrupulous traders offering ultra-low rates of exchange.
Several ECB policymakers, primarily from the bloc’s east, asked ECB chief Christine Lagarde on Thursday for a joint solution and the bank is now scrambling to design a facility.
“This would be a humanitarian, goodwill effort, rather than a regular policy instrument, but we are still bound by laws so it’s not like we could just say, come, we’ll covert it for you,” one of the sources said.
“But we have days, not weeks to figure it out.”
The sources said that EU leaders were also pressuring the bank to act and had asked the ECB to speed up its efforts.
An ECB spokesperson declined to comment. On Thursday, Lagarde said the bank was exploring its options and hoped to have tools in the next few days “to support the Ukrainian people and the Ukrainian authorities”.
The problem is that any large-scale conversion is likely to lead to financial losses, raising the question of who should bear the cost.
In normal times, the ECB would open a direct link with the Ukrainian central bank via a swap or repo line to facilitate the conversion.
But such instruments require collateral that Ukraine’s central bank is hardly in a position to put up. Without collateral the legality of an ECB facility could be doubtful, the sources said.
An option being considered by European Union leaders at their summit in Versailles this week is for the EU to guarantee the facility and use the ECB as a facilitator of the transactions.
The actual conversions would happen via commercial banks but under the auspices of the euro zone central bank and backed by common rules.
Part of the solution could be letting Ukrainians open bank accounts in Europe and allowing them to spend their hryvnia electronically up to a pre-set limit.
Policymakers are under pressure to set an affordable exchange rate for such a scheme, which is likely to increase losses. Individual limits are under discussion, as is the size of the overall facility, the sources said.
The problem is urgent because desperate refugees are falling victim to some of the few vendors willing to take their currency.
“Some traders offer a very unfavourable exchange rate, which can be seen as a kind of usury,” the Polish Human Rights Ombudsman said in a statement last week.
Poland, outside the euro zone, has seen the biggest influx of refugees from its neighbour, and its central bank has already said a conversion facility will be set up.
Polish central bank governor Adam Glapinski said on Wednesday there will be a system introduced allowing Ukrainians to sell hryvnias, with two scenarios being considered.
Either the Polish central bank would buy the currency and later sell it to the Ukrainian central bank or commercial banks would be involved, with the second option seen as more probable.
The Bulgarian central bank has also said it is working on a facility while in Romania, the local unit of Erste Bank lets Ukrainians convert around 400 euros worth of hryvnia.