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The Latest Danger in Ukraine: A Currency Crash

The Latest Danger in Ukraine: A Currency Crash
Photograph by Igor Golovniov/Corbis

As street protests in Ukraine enter their third week, a new crisis is brewing that could force President Viktor Yanukovych’s hand. The nation’s currency reserves have fallen so low that the central bank may soon be unable to support the hryvnia at its current value. Traders’ bets on a weaker hryvnia reached a one-year high on Dec. 10, following a 9 percent plunge in foreign reserves last month.

Borrowing costs by lenders have soared in recent weeks, suggesting that the government’s efforts to prevent a devaluation are creating cash shortages. “The disruption of normal business operations poses risks for inflation, and potential capital flight could raise pressure” on the currency, analysts Vladimir Pantyushin and Andreas Kolbe of Barclays wrote in a report today.