Ukrainian refugees can't exchange cash

Enlarge image

People from Ukraine

collect savings from ATMs shortly before fleeing to the EU.

However, they cannot currently exchange their national currency hryvnia

Photo: SOPA Images/LightRocket via Getty Images

Around 3.5 million people have fled to the EU since Russia attacked Ukraine.

Before they fled, many of them withdrew most of their savings in cash so that they could exchange them in Europe and be able to get supplies in the new country first.

They stood in long queues in front of the ATMs in their home towns for hours, sometimes even when the first bombs hit their cities.

But the cash they brought has been useless for more than a week.

In the EU, Ukrainian refugees cannot use the certificates they have brought with them from their home country.

The reason: hryvnia, the Ukrainian national currency, is no longer exchanged for euros by banks.

Banks and bureaux de change do not accept the currency as they hardly know how much it is worth.

Even if exchange rates come about, then only at large discounts compared to the pre-war level or at horrendous fees.

According to the Ukrainian National Bank, many refugees are forced to accept such unofficial exchange rates.

The central bank therefore urged those leaving to deposit cash in Ukrainian banks and prefer to use payment cards to pay abroad.

Currently, one hryvnia is worth around three cents because Ukraine has suspended most foreign exchange trading and frozen the official exchange rate for the hryvnia at pre-war levels.

It has also imposed a moratorium on foreign exchange payments, except for those supporting the country's war effort.

Anyone who emptied their account before fleeing the Russian bombing raids in order to be supplied abroad now has to realize that the reserves are useless.

Forums on refugee aid are full of relevant reports.

Bank representatives have therefore been calling for a European solution to the financial disaster since the beginning of the wave of refugees.

Without money, people need even more help than they already have.

They cannot pay for food, clothing or shelter.

This is uncomfortable for many, as can be read in the exchange forums.

The EU has been discussing a way out of the cash squeeze for days

Even after a week, nothing has changed in the current situation.

Measures do not seem to be found so quickly.

The EU is still discussing with its member states a possibility that would enable Ukrainian refugees to exchange their savings for euros or other European currencies and alleviate their misery.

For example, the European Commission has been in talks with the European Central Bank for more than a week about setting up a loan facility that would allow a certain amount of savings in Ukrainian currency to be exchanged for euros, the

reports.

One problem: the

.

And these guarantees cannot be given.

Officials say that while EU capitals are ready to provide the needed safeguards, which could amount to billions of euros, rapid implementation is proving to be a complex legal and technical challenge.

"Complex legal and technical challenge"

The ECB has so far decided that it cannot exchange hryvnia for euros without a government guarantee, as this could be seen as

.

The ECB's concern is that it will have to hold a large amount of hryvnia, which could lose much of its value and cannot be exchanged back into euros at the central bank of Ukraine - at least until the war is over.

Christine Lagarde

, 66, President of the ECB, said the central bank spent last weekend trying to find a solution that would allow it to exchange refugees' hryvnias for euros.

"It's complicated," she said.

"We need a guarantee for the exchange. Sometimes our legal framework shows its limits in times of crisis."

The ECB submitted a proposal to the Commission on how a hryvnia-to-euro conversion system could work, using an EU guarantee to cover the risk of exchange rate losses at the central bank.

However, she cannot yet reveal what the long-term solution will look like.

"We are aware of the seriousness of this problem and solutions are being examined at European level to help Ukrainian refugees exchange their currency," an ECB spokeswoman told

No solution in the entire EU

Demand for cash is currently high across the EU.

In Lithuania, the number of cash withdrawals doubled after the invasion of Ukraine, causing some ATMs to run empty.

The central banks of Estonia, Latvia, Finland, Slovakia and Hungary also reported higher demand for cash.

Sweden's oldest bank, Swedbank, also reported a record number of cash withdrawals in three years.

The problem is particularly acute in Poland, where more than 2.1 million Ukrainians are currently seeking shelter.

According to statements by the Polish central bank, cash in circulation rose by eleven percent because there were massive withdrawals in the first week after the war, which caused "problems with the availability of cash in ATMs".

Central bank of Poland goes its own way

The Polish central bank has also signed an agreement with its Ukrainian counterpart as a first attempt at a solution that allows adult refugees to exchange up to 10,000 hryvnia per person at a "rounded, official" rate.

The Commission therefore urgently needs to set up a mechanism for EU Member States to finance the guarantee, as the EU budget does not have the necessary funds.

An internal Commission note seen by the

indicates that the guarantee could range from €1 billion to €3 billion, with an assumed ceiling of €300 per refugee.

The next few weeks will show whether that is enough.