How the hryvnia learned to float

Between 2005 and 2008 the hryvnia sat at about five to the dollar. It was held there. Then in the autumn of 2008 it went to eight in a matter of weeks. In 2014 and 2015 the same thing happened again, on a larger scale.

Why a defended rate fails the way it does

A central bank holding a rate is selling reserves to do it. That works while reserves last and while the market believes it will continue. The moment either condition fails, the adjustment that has been suppressed for years arrives at once.

The damage is not the new rate. It is the speed. A business can operate at five or at eight; what it cannot do is move from one to the other over a fortnight with contracts signed at the old level and stock bought on credit.

What replaced it

After 2015, managed flexibility with an inflation target as the anchor instead of the exchange rate. The rate moves. Some days it moves against you. Over a year it moves a good deal, and it does so in increments that a treasury function can observe and respond to.

What this changed in practice

It changed how we price and how we contract. Under a peg everyone quietly assumes the rate is permanent, and the whole economy accumulates unhedged foreign currency exposure because the risk appears to be zero. Under a float nobody assumes that. Contracts carry currency clauses, pricing is reviewed, and exposure is at least visible.

A currency that moves a little every week is an irritation. A currency that cannot move until it moves by half is a solvency event. Twenty years here has left me firmly in favour of the irritation.

Having lived through two halvings, what I learned is that a defended rate is dangerous because it hides the real risk. Under a float there is a small correction every day and a company adapts to it; under a peg the correction accumulates and arrives all at once. Small and frequent pain is always cheaper than large and sudden pain.