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EU grants guarantees for Ukrainians’ savings – POLITICO

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FRANKFURT — Budding EU efforts to ensure Ukrainian refugees can exchange their savings for euros are likely to result in financial authorities offering the European Central Bank a backstop guaranteeing payments, three officials said POLITICO on Friday.

Refugees who emptied their bank accounts before fleeing are either charged exorbitant exchange rates that are up to 90 percent higher than before the war, or they are rejected outright.

“A lot of help was offered when crossing the border from Ukraine to Poland in Zosin – free food, free diapers,” a Ukrainian refugee told POLITICO. “But no one was willing to change cash.”

The problem is that the massive uncertainty about Ukraine’s economic prospects means refugees are struggling to find anyone willing to buy their currency. This applies not only to cash, but also to payment cards. And banks fear they won’t be reimbursed by the Ukrainian banks that issued the card.

In order for European banks to accept hryvnia, they would need guarantees to cover potential losses as they doubt they can receive payments at the official exchange rate.

One option currently being discussed by the Commission, ECB and EU states would be a so-called repurchase agreement between the ECB and the Ukrainian central bank, under which the ECB would make euros available to the National Bank of Ukraine against collateral. Since the war-torn country cannot provide the collateral itself, EU countries would do so — taking into account exchange rate risk, officials said, suggesting the process could drag on.

However, it is still unclear how much collateral will be posted and when. EU leaders discussed the plan at their Versailles summit last week with representatives of member countries, the ECB and the Commission continued their efforts in Brussels on Friday. Leaders will return to the issue at their summit in Brussels next week, an official said.

While EU authorities stress they understand the urgency, technical and legal challenges have prevented a quick solution.

“Solutions are being explored at the European level to help Ukrainian refugees exchange their currency,” said an ECB spokesman.

For its part, the National Bank of Ukraine told POLITICO that it is working with EU central banks to resolve this issue, but added that “it may take some time”.

ECB President Christine Lagarde said last week she hoped Europe could come up with a solution within days, but on Thursday she alluded to difficulties, noting that the ECB needs to be creative in its efforts to help Ukraine At the same time, refugees must exchange their money within the legal limits.

“The simple question is: Who bears the exchange rate risk?” said a central bank official. “It can’t be the central bank.”

Since this type of support would not constitute a monetary policy operation, any ECB losses could be viewed as a form of monetary financing – short for central bank support of national finances. The Maastricht Treaty forbids that, which means that the state coffers would ultimately have to do it be on the hook.

Other non-euro countries are already moving. In Poland, the main destination for refugees, the central bank is working on a similar program to convert hryvnias into złotys. The central bank will allow cash exchanges of up to 10,000 hryvnia per person (about 1,400 złoty or 300 euros) through the state-controlled bank PKO BP, it said in a press release Thursday.

An alternative would only be Distributing cash to refugees, a much simpler and legally unproblematic operation. But authorities fear it could send a worrying signal to Ukrainians that Europe has no confidence in the future of Ukraine’s currency.

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