Exchange controls and black money markets in Kiev

Money changing in Kiev is extremely difficult for reasons I do not fully understand. Exchange offices are either closed or when open it takes forever to complete and register the transaction. A passport is needed in order to change money. I was even told that Ukrainian citizens need to register how much money they exchange monthly and in case of big amounts to prove the origin of the money exchanged. These are recent regulations (from September 23 2011) and have to do with some shortage of hard currency or concerns about the stability of the hryvnia. Interest rates on deposits in hryvnia are above 15 % which looks like a bad inflation forecast. You can read more about the new regulations in Kateryna Panova and Jakub Parushinski’s article in the Kyiv Post 

For the random traveler it was a good news that exchange rate at the airport was the same as in the city, which I have not seen in any other country. It was also possible to exchange gold (I think there was only a “we buy” price quote for gold). The problem of long lines of people waiting in front of the exchange office often found a solution in the form of spontaneous black markets emerging so familiar from the socialist economy.

After I missed my flight from Kiev to Riga (due to no fault of my own) I had to change money to go back to the city center. The line was long and stood still. I couldn’t stand there waiting anymore. I turned around to the young Russian couple behind me and asked them if they had hryvnia (the Ukrainian currency translates as bracelet). They said they had some and were looking for rubles. I had no rubles but needed to change euro. They agreed to exchange hryvnia for my euro. I had a 20 and a 5 euro notes while they had a 100 hryvnia. At an exchange rate of 11 hryvnia per euro this was an unfortunate combination. To change 20 euro I needed to get 220 hryvnia and they did not have that  much. To change 5 euros I needed to get 55 hryvnia but they only had a whole bill of 100. After trying unsuccessfully to break the bill at different airport shops the transaction failed.

The next day I bought a carton of cigarettes which I had promised to bring back to Vienna, performing another legendary function of the  east-west traveler. That left me short of cash again. All currency exchange offices on Independence Square were closed with the exception of one. The line in front of it was also exceptional. This time a man approached me and offered to change my money. It was my last day in Kiev the sun was going down in a few hours I still wanted to see so many things, waiting in line seemed like a stupid thing to do. I agreed. I asked him if the money was real. It would have been such a ridiculous way to be cheated if he gave me fakes. But he said something like “we never had any counterfeit money here”, sounding like I should have known this fact about Ukraine. I trusted him. 50 euro changed hands with 550 hrevnia which not only looked like it should  but also bought like hot. There was something exciting about being a part of a black currency exchange market, of realizing a successful private transaction of mutual benefit and satisfaction without having to resort to police like procedure and well before the sun went down. It was like stepping back in time and rediscovering the beauty of voluntary exchange.

In fact Kiev money exchange is not so bad. I have definitely been through a more cumbersome and expensive money changing procedure. Downtown Los Angeles in 2009 had no currency exchange offices at all. I had to go to a bank and since I was not a customer of this bank I had to present both my passport and a commission of 7 or 8 USD for any transaction. 2010 New York was similar. Banks are not fun anyway at least not for small transactions. Inside a bank no lines are able to form and there is no  possibility of meeting potential counterpart for exchange. The security will not allow it either. For your safety. The act of trusting a complete stranger on the side of the street as I did in Kiev is simply unthinkable in the USA. Maybe I am just spoiled because in Sofia it is easy to find a 24/7 currency exchange that is never closed, has almost any currency on earth and no waiting lines.

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3 thoughts on “Exchange controls and black money markets in Kiev

    • I did not say you can’t trust anyone in NY or LA let alone you can’t trust anyone in the USA. I said that a money exchange practice among strangers on the street, which is based only on trust and no institutional guarantees about the authenticity of money (which a bank can give) is not a common thing in the USA but it is very common in Ukraine. This is not because you cannot trust people in the States, and there is no good reason why you should trust money changers in Kiev either. This is because in the two countries entirely different monetary practices exist. The USA has few change bureaus because there is also very few non-US currency circulating. Additionally in the USA most transactions are not done in cash. In contrast many transaction in Ukraine are done in different foreign currencies and in cash rather than through the banks (a sign of the informal economy). So in a way there is less need for money exchange in the USA compared to Ukraine. Of course there might be an exchange office in Moab, Utah which I have not used, and there might be even informal money changers somewhere which i have not yet but would be very interested to see. In Ukraine state regulation has made it slow and difficult to exchange money and in such cases black markets emerge spontaneously. This is what the blog was about and not about trusting strangers. I have had wonderful experiences about trusting strangers in America and other places and I am planning to write about those as well.

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