Economic development of transition

National Bank of Ukraine’s Role and Activities in the Context of Transition – Related Problems

In August 2001 joint project between the National Bank of Ukraine and CASE Ukraine "National Bank of Ukraine's Role and Activities in the Context of Transition-Related Problems" was launched. Canadian International Development Agency funded this initiative within the framework of Policy Advice for Reform in Ukraine program that is managed by Canadian Bureau for International Education.

The objective of the project was to assist the National Bank of Ukraine (NBU) in developing their capacity to prepare analytically grounded monetary policy strategies.

Project background

The role of the central bank (CB) in a market economy has been the subject of perpetual debate and could keep a large number of theoreticians and practitioners busy for a long time. Moreover, when examined within the context of a postsoviet transition economy, the issues become even more complex. Textbook concepts of CB activities rely on certain assumptions-either explicit or implicit-about the environment in which CB operates. For instance, CB is supposed to have a specific organizational structure, experienced personnel, the necessary resources, and to share certain functions with other branches of government that are capable of performing predetermined activities. It is also assumed that CB operates in a transparent regulatory framework that deals with specific market institutions.

None of these conditions, however, is met in a transition economy, where aside from problems related to the non-availability of many standard policy instruments profound conflicts and trade-offs between current policies and long-term structural and institutional reforms exists. Transition economies must create viable institutional infrastructures for formulating long-term policies, while, at the same time, every-day decisions must be made for which the appropriate framework is lacking.

The National Bank of Ukraine plays a crucial role in the Ukrainian economy. The NBU's activities are regulated by both current legislation and by its own regulatory decisions. Although it belongs to the executive branch of government, NBU enjoys a significant degree of autonomy. While its main function is to perform monetary policy, NBU is also indirectly involved in other policies (social, fiscal, industrial, regional, foreign trade, etc.) and its activities affect the country's stability, its growth and the prosperity of its people. In addition, the NBU performs some of the operations typical of a regular bank, like holding of deposits, issuing of credits, and handling of security transactions.

Project tasks

The project was devoted to general issues concerning the role of CB in transition economies, as well as to specific issues related to the institutional status and day-to-day activities of NBU. The project was aimed at the following tasks:

  • to study various transition-related problems in CB activities in the context of economic theory and international experience;
  • to develop the concept and methodology for analytical monitoring system to describe, measure, and analyze institutional and structural changes in the variables relevant to Ukrainian monetary policy and NBU activities;
  • to apply, where appropriate, the Canadian experience, including relevant institutions and policies;
  • to study Poland's experience with post-soviet transition reforms, Poland's monetary policy, and institutional relationship between Polish government and its CB.
Тематичні напрямки
  • Economic development of transition
  • Financial markets and institutions
  • Projects

Authors:

August 11, 2001