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Ukrainian currency tanks on account of political turmoil

Fast-depleting foreign reserves marks a dangerous time for Ukraine, as its central bank desperately attempts to stabilize its currency.

By Ananth Baliga
Ukrainian currency tanks on account of political turmoil
Anti-government protesters stand guard in front of the parliament building in Kiev on February 22, 2014. UPI/Ivan Vakolenko | License Photo

KIEV, Ukraine, Feb. 26 (UPI) -- Ukraine's currency, the hryvnia, has fallen to a new low of ten to the dollar, on account of long-term financial instability made worse by recent political strife.

The currency has now fallen 18 percent to a ten-year low, and it seems things will only get worse unless the country receives immediate financial help. While it was expected that Russia would intervene and help the troubled nation, recent reports suggest that they seem unlikely to do so. It could then fall upon the West and the International Monetary Fund to help Ukraine.

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Ukraine's central bank has attempted to stem the fall in its currency by using its foreign currency reservers to buy hryvnia, but they now run the risk of depleting the foreign reserves.

It is a widely agreed rule that a country should have enough reserves to pay for three months of imports. According to Capital Economics, a consultancy in London, Ukraine has only two months worth of reserves left and this could be a signal for investors to cut their losses and remove their money from the system.

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Ukraine will also have to deal with $66 billion of debt that will mature this year. While most of this is private sector debt, the government will have to pay $9 billion of this debt or find a way to roll it over, continuing the vicious cycle of borrowing more to pay for the debt.

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While the political turmoil has made things worse, Ukraine's financial problems go back many years. The size of its economy today is smaller than it was in 1992, in the early days of the Soviet Union breakup.

[BBC]

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