Thursday, February 27, 2014

Ukraine's currency in free fall

Ukraine's financial situation continued to unravel today as the currency gave up another 10% - and seems to be in free fall.


With fresh promises of aid from the West, including possibly the IMF, the near-term financial situation could potentially be stabilized. The political realities however look grim. It is not clear if the revolutionaries in Kiev will support the Parliament and the interim government.  It is also not entirely clear if the nation as a whole supports the revolution. The probability of more violence - possibly on a broad scale - remains high.

History is not on Ukraine's side. The Ukrainian people have been under some form of control of one or several of their neighbors for centuries. Other than during the years following the collapse of the Soviet Union and a short period at the beginning of the 20th century, the nation has almost no history of independence. It may take more than an ouster of an unpopular leader to create an independent state with a democratic government. 

Even after the collapse of the USSR, the Ukrainians have had a tough time moving away from the Russian sphere of influence - in large part due to their reliance on Russian energy resources. The Russians in turn are unlikely to just let Ukraine go. That's why the latest developments in Crimea (see story) are especially troubling.

The Russian ruble, which has already been under pressure as a result of the central bank policy (see post), has traded to new lows in part due to potential escalation of tensions in the region. The situation remains quite fluid and more volatility is to be expected.

Source: (chart shows the euro appreciating against the ruble)
From our sponsor:
Related Posts Plugin for WordPress, Blogger...
Bookmark this post:
Share on StockTwits