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19 May 2022

Ukraine’s central bank introduced stringent restrictions on crypto purchases and other quasi-cash transactions using local currency

On 20 April 2022, the National Bank of Ukraine (the “NBU“) introduced additional prohibitions on so-called “quasi-cash” transactions by individuals using bank accounts in national currency, Hryvnia (“UAH”). The limitations are aimed at preventing “inefficient” use of capital during martial law in the country.

Stringent restrictions

Under the new rule, individuals may make cross-border “quasi-cash” transactions only with their foreign currency denominated payment cards. Payments for “quasi-cash” from UAH bank accounts are now prohibited. Furthermore, “quasi-cash” transactions are now capped at UAH 100,000 (approx. EUR 3,250) per month. Cross-border peer-to-peer transfers are also counted towards the cap.

Transactions that are subject to the new rule comprise transactions with assets that are convertible (exchangeable) directly to cash, as determined by the rules established by international payment systems. Examples of “quasi-cash” transactions are purchases of virtual assets, including cryptocurrencies, and gift cards, deposits into electronic wallets, brokerage and forex accounts, cash transfers to bookmakers, purchases of traveler’s cheques, and other similar transactions.

The limitations are introduced indefinitely, i.e. they will remain in effect for as long as the NBU considers them necessary.

Reportedly, some Ukrainian banks (e.g., PrivatBank and Monobank) decided to take an even more stringent approach and restrict payments for “quasi-cash” assets in foreign currency, too. It was suggested that this was due to those banks’ technical inability to introduce the more limited prohibition of the NBU by distinguishing between local and foreign currency transactions. Another reason could be that transactions with virtual assets are still in the legal “grey zone” because the Law of Ukraine “On Virtual Assets”, which was approved by the Ukrainian Parliament on 17 February 2022, has not come into effect yet.

Reasoning behind the restrictions

The limitations on “quasi-cash” transactions are part of the central bank’s policy to introduce capital controls during martial law in Ukraine. After the start of the Russian illegal aggression against Ukraine, the NBU severely restricted transactions with foreign currency and money transfers outside of Ukraine to maintain the balance of payments.

Initially, there were no restrictions on the use of payment cards for various transactions, as it was important to ensure that Ukrainian refugees could purchase goods and services abroad using payment cards tied to their UAH accounts. Eventually, however, the central bank became concerned that individuals used the same payment cards for “quasi-cash” transactions to circumvent the FX restrictions. In particular, to preserve the value of their assets, people converted UAH to cryptocurrencies, such as USDT, or foreign currency via payment service providers, such as Wise or Revolut. According to the NBU, as a result banks were forced to purchase significant amounts in foreign currency for settlements with international payment systems, which put additional pressure on the Ukrainian FX market.

By prohibiting “quasi-cash” transactions, the NBU expects to eliminate the capital outflows related to them, which the central bank considers as “inefficient”, which should also help improve the situation in the FX market and reduce pressure on Ukraine’s international reserves.

Currently, individuals who would like to exchange their UAH assets into foreign currency are allowed to make physical purchases of foreign cash (i.e., using banknotes). Such physical FX transactions were also banned by the central bank at the outset of the war, but the ban was subsequently lifted on 14 April 2022.

Information contained in this overview is for general information purposes only, does not constitute legal or other professional advice, and should not be relied upon as a substitute for specific professional advice tailored to particular circumstances.

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