Page 107 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE

situation since establishing the priorities which prescribe sequence of tasks,

never eliminating the problem of achieving them.
Price stability is considered to be a necessary but not sufficient

condition for financial stability, since stable prices do not prevent crises,

maintain the stability of the exchange rate does not mean the elimination of
systemic risk, and compliance with prudential standards does not guarantee

the stability of the banking system.
Establishment of the highest priority for financial stability could be the

optimal solution, as this priority involves completion of all the points - the stability
of the money market, the prices and the banking sector. In such a case significant

expansion the central bank’s function by making appropriate changes in legislation

would be required.
Given the legally defined trinity of purposes of National Bank of

Ukraine, we analyze its operational capacity to provide stability in each of

the three areas.
1. National currency stability.

The transition to the flexible exchange rate regime has been
repeatedly declared in the different versions of Memoranda of Understanding

on technical assistance programs "stand-by". However, on practice the
hryvnia exchange rate, in fact, was fixed. Long-term support of a fixed

exchange rate in Ukraine has led to the accumulation of risks in the banking

system. In particular, risk of a critical decline in foreign currency reserves
that ensure external solvency of the state, was exacerbated. Speculative

pressure on the currency has increased due to increasing banks' debt in
international markets, which is used to provide loans to domestic borrowers

who do not have regular income in foreign currency. The country has
become more susceptible to currency crises, as well as to the double

currency and banking crises.

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