Next in Ukraine’s Defense <br>Comes Bid To Establish <br>A Strong, Stable Currency

The next step for Ukraine after its resounding affirmation of the democratic process is to maintain the momentum of hope by delivering results. It’s vital to link the aspirations of Ukrainian citizens for political unity and sovereign independence with bold economic policies that will lead to greater prosperity throughout the nation.A full revamp of Ukraine’s government will take place later this year under the leadership of its newly-elected president, Petro Poroshenko. A businessman who well understands the Kremlin’s capacity to pressure Ukraine’s economy — his company’s premiere chocolates were suddenly declared unfit for Russian consumption when Vladimir Putin decided to crush Ukrainian exports last year — he likewise senses the need to reassure his countrymen that things will now get better.“The first steps of our entire team at the beginning of the presidency will concentrate on ending the war, ending the chaos, ending the disorder and bringing peace to Ukrainian soil, to a united, single Ukraine,” Mr. Poroshenko told supporters at a victory rally.Yet long before the end of this year, we can expect renewed efforts from Moscow to bring about just the opposite — to destabilize Ukraine’s economic stability and derail its political ambitions. The most effective way to instigate a collapse of confidence in Ukraine’s bright future is to trigger a collapse of its sovereign currency, the hryvnia. With the mere threat of military confrontation or more belligerent demands for prepayment on needed energy deliveries, Russia can ride roughshod over the economic plans of Mr. Poroshenko’s new administration by sending the hryvnia into a tailspin.It is precisely Ukraine’s vulnerability on the currency front that prompted Senators Rubio and Cruz to write a letter to Treasury Secretary Lew last month suggesting an innovative way to strengthen the hryvnia. Anticipating that Mr. Putin might target Ukraine’s currency, which has long been pegged to the dollar, in his efforts to prevent Ukraine from becoming a successful nation based on Western-style democracy and free markets, they recommended consideration of a currency board as a good way to stabilize the value of Ukraine’s sovereign money.“Instead of debasing the hryvnia, we should empower it,” the two lawmakers explained in their letter. A currency board is an exchange-rate arrangement whereby a nation anchors its own money to a stronger reserve currency, such as the dollar or euro, and agrees to convert its own currency into the foreign anchor currency at a fixed exchange rate. To do so, it must maintain 100% reserves under strict rules administered through a transparent and accountable monetary authority.“Currency boards have been successfully used by other countries going through transitions in the past,” noted Messrs. Rubio and Cruz, pointing out that slumped production in Estonia gave way to economic growth and financial stability after adopting such an approach in 1992, following the breakup of the Soviet Union. Latvia fixed its currency to the dollar in 1994 to stem inflation and reassure foreign investors; within a year, capital inflows amounting to almost 7% of GDP poured into the newly-liberated country.Unfortunately, under the economic reform plan worked out with the International Monetary Fund, Ukraine is being told to “float” its currency — to let its value sink with every new verbal assault launched from Moscow. While the notion embraced by IMF economists is that currency devaluation will make Ukraine’s exports more “competitive” by cheapening their price in foreign markets, the impact on Ukraine’s destiny may prove far more costly.A collapsing currency is not only destabilizing to a nation’s economy – it’s demoralizing to its citizens.No wonder the incoming Ukrainian president warned against the sharp devaluation of the hryvnia last month, according to news agency Interfax-Ukraine. Calling it “dangerous” as he detailed its consequences, Mr. Poroshenko lamented the politically perilous syndrome of “unleashed inflation, a sharp fall in living standards of the people and a jump in protest moods.”It would be a tragic loss for the future of democracy if Ukraine’s currency were to be pushed into free fall through the machinations and calculated utterances of an embittered Mr. Putin. It’s imperative that the solid plans for economic reform and political integrity put forward by Ukraine’s new president be given a chance to work in a stable environment.Economic prosperity cannot be built on monetary quicksand. The IMF should use some its $17 billion in financial assistance to help Ukraine fortify its money through a currency board. It’s the most powerful way to signal our faith in Ukrainians to live up to their dreams.Ms. Shelton, senior fellow of the Atlas Economic Research Foundation, is a contributing editor of the Sun.

Next in Ukraine’s Defense <br>Comes Bid To Establish <br>A Strong, Stable Currency

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