Taking 5 Zeros Off Most Prices, Ukraine Debuts a Currency

In a monetary reform awaited for five years, Ukraine on Monday introduced a new currency, the hryvnia, to replace the inflation-ravaged scrip issued when the country broke away from Soviet rulers and rubles.

All wages, pensions and foreign currency exchanges must now be paid in the new bank notes or in new coins called kopiykas. The temporary currency in use since late 1991, the karbovanets, will remain valid in retail trade for two weeks and gradually be withdrawn from circulation.

Aside from shaving five zeros off most prices, authors of the reform hope that the hryvnia, worth about 57 cents, will lure much of the estimated $2 billion now circulating in Ukraine’s “shadow” economy into legal trade. The underground economy, based largely on cash dollars that evade banking controls and taxes, is believed to be twice the size of the official gross national product.

“This is the money of distrust,” said Viktor Yushchenko, head of Ukraine’s National Bank. “And the goal of this reform is to build trust in the national currency.”

Since the reform was announced a week ago, Yushchenko’s tireless radio and television appearances seem to be winning popular trust. The karbovanets initially plunged amid panic buying of dollars last week but quickly rebounded to 176,000 to the dollar--the rate for the last year. The hryvnia was introduced at a rate of 1.76 to the dollar, which will remain fixed at least until Sept. 16.

After that, the karbovanets will gradually go out of circulation and will be exchangeable into hryvnias for six months.

Yushchenko said the hryvnia might be permanently pegged to a major world currency or basket of currencies. The International Monetary Fund, which is negotiating to lend Ukraine $1.5 billion, has insisted on such a step.

Alexandra Lystopad, a vendor at a Kiev farmers market, said the hryvnia’s appearance alone inspired trust.

“This feels like real money,” she said, fingering a crisp one-hryvnia note depicting Volodymyr the Great, grand prince of medieval Kievan Russia, to which independent Ukraine traces its roots and the hryvnia traces its name.

Taking a crumpled 100,000-karbovanets note, worth one hryvnia, out of her pocket, she waved it derisively.

“This is just paper,” she said.

The karbovanets looks and feels like Monopoly money, but in much higher denominations. Inflation, higher in Ukraine than anywhere else in the former Soviet Union, has eroded its value from 10 to the dollar in 1991 to Monday’s rate of 176,000 to 1.

The hryvnia notes are printed in Canada, England and Ukraine’s modern new mint on state-of-the-art paper with protective fluorescent and ultraviolet paint, watermarks and fibers. They come in eight denominations from one to 100 and depict historical figures.

Not everyone was smiling at the new currency.

“This would be a reform if they were giving us American dollars and American pensions,” boomed Vladislav Ivanov as he stuffed his pension, worth about $30, into his pocket.