The timing was far from ideal, according to Bloomberg.
Shortly after Ukraine slapped curbs on cash transactions to help rein in the grey economy, the head of the nation`s tax service told reporters he won`t entrust his savings to banks, Volodymyr Verbyany wrote in the article titled ”Ukraine Wants to Go Cashless But the Black Market Rules,” published by Bloomberg on February 16.
His stash of dollars, euros and hryvnia was the equivalent of $1.8 million, according to government asset declarations from 2016.
Officials in the ex-Soviet republic aren`t offering much of an example to citizens wary of committing their nest eggs to banks and hesitant about funneling earnings through electronic-payment systems. Efforts to wean people away from cash have been launched from Frankfurt to New Delhi – with varying success – as countries seek to stamp out illegal activity and boost their tax take. Ravaged by conflict, Ukraine`s state coffers are in need of help.
”Our goal is to shrink the shadow economy through electronic payments,” said Ruslan Kravets, who heads the central bank`s `Cashless Economy` project.
The bank last month outlawed cash transactions of more than 50,000 ($1,850), a third of the previous limit. This year`s budget gap, narrowing under a $17.5 billion bailout, is forecast at about 3% of gross domestic product. Official estimates put illicit dealings at a third of the $90 billion economy.
Despite the project`s name, banknotes aren`t in any danger of disappearing in the foreseeable future. Ukrainians receive half of their income electronically but spend more than four-fifths in cash, using it to pay for items as large as cars and apartments. And while trust in banks is gradually being rebuilt, more than 60 lenders were shut down in the wake of a deep recession in 2014-15 and the conflict with Kremlin-backed insurgents on the Russian border, leaving clients cautious.
One indicator Kravets is targeting is the ratio of cash to GDP – 13.6% at the start of 2017 compared with 9.5% in Poland and less than 2% in Norway.
”Our goal is to reach at least the level of Poland by 2020,” he said.
To do that, the bank must convince stores and kiosks to accept cashless payments, and work with the authorities to increase cash-free rides on public transport. Elsewhere, about half of pensioners collect their monthly payments in person, while too many people still pay their utility bills in cash instead of online.
Ukraine`s No. 1 lender, PJSK PrivatBank – nationalized last year – is the country`s biggest a purveyor of online transactions. Its platform lets clients buy everything from foreign currency to train rides and soccer tickets, making it an attractive asset once it`s been restructured, according to central bank Governor Valeriya Gontareva.
Re-instilling faith in the financial system could also boost economic growth, according to Kravets, who cited interest gains for savers who return to banks and more credit to businesses if lenders swell their customer bases.
”It`s not just about the cashless economy and non-cash payments – it`s also about safety and yield,” he said.
Kravets doesn`t need to go far to find a suitable candidate for his powers of persuasion: Official declarations show central bank Deputy Governor Kateryna Rozhkova has cash savings of almost $400,000. She says the money was meant for specific purchases that haven`t happened, and that she`s now considering putting most of it in deposit accounts.