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. Last Updated: 07/27/2016

Kiev to Freeze Prices in Currency Debut

KIEV -- Ukraine, preparing to launch a new currency next week, promised Tuesday to freeze prices during the hryvna's first month to stop a new surge in inflation.


The central bank, in a campaign to persuade people they will not lose money when the new currency is introduced Sept. 2, said the hryvna would remain stable and may be linked to a basket of foreign currencies.


"The value of one hryvna will grow from $1.76 in its first days to $1.73 and more, and we have good indications of its further growth," central bank chief Viktor Yushchenko told a news conference.


Yushchenko has appeared on several special television programs to explain the switch, and urge the public -- many of whom lost money in previous Soviet currency reforms -- not to start buying dollars.


The main effect of the swap, which will replace the temporary karbovanets coupon with the hryvna, will be to wipe five zeros off Ukraine's unwieldy prices, bloated by hyperinflation after Ukraine became independent five years ago.


The two currencies will circulate together, with the hryvna worth 100,000 karbovanets, until Sept. 16, when the karbovanets will be withdrawn.


The karbovanets was fixed at 176,100 per dollar on the Ukraine Interbank Currency Exchange on Tuesday, unchanged from Friday. There was no trading Monday, a public holiday, and the new currency was announced on Sunday, Ukraine's fifth anniversary of independence.


The authorities have repeatedly promised to introduce the hryvna, whose name is taken from money used in the Kievan Rus empire 10 centuries ago, but the economic conditions have never been right in the past. That has changed recently.


The karbovanets has been around 176,000 for a month, after strengthening from below 190,000 in March, and monthly inflation was a record low 0.1 percent in June and July.


Officials expect it to jump to 5 or 6 percent in August because of a rise in public electricity and gas prices.


But Yushchenko said inflation could hit 10 percent if consumers panic and start stockpiling goods because of the swap.


The government ordered a price freeze for a month to prevent state-owned and private businesses from increasing prices when people trade in the old currency for the new.


It also ordered street kiosks pushing the karbovanets below 193,000 to the dollar to be closed.


The karbovanets fell to a record low 250,000 per dollar in some parts of Ukraine just before Sunday's announcement.


"What is impressive is the lengths they're going to, to educate people that this is not confiscatory," one Western diplomat said. "I think they've realized they've got to take the population with them or there will be panic."


So far the authorities seem to be succeeding. Queues to buy dollars and other hard currencies haven not formed at street exchange points.


Ukraine is also seeking a $1.5 billiondstabilization fund from the International Monetary Fund to back the hryvna, but the issue has not yet been settled. An IMF mission will return to Kiev next month for talks on the fund.


Yushchenko said a stabilization fund would enable the central bank to tie the hryvna to a basket of currencies or a single foreign currency.