HOW THE NBU STREAMLINES THE RULES OF FREE EXCHANGE OF CASH FOREIGN CURRENCY IN UKRAINE

Since May, Ukrainians have faced challenges in freely exchanging foreign currency in cash, particularly U.S. dollars. Citizens attempting to exchange foreign currency have encountered refusals from institutions licensed to conduct currency exchange operations. These refusals are often justified by claims of significant wear on banknotes or their issuance in earlier years. Numerous exchange points and banks, citing such reasons, began imposing a commission of 10–30% for foreign currency exchanges, effectively making it impossible to exchange currency at the established exchange rate. As a result, Ukrainians lost at least 10% of the nominal value of each foreign banknote.

These actions by licensed currency exchange institutions sparked considerable public outcry, prompting the National Bank of Ukraine (NBU) to provide clarifications on cash foreign currency exchange and subsequently amend regulatory acts.

NBU Clarifications and Identified Issues

The NBU emphasized that it had not adopted any regulatory acts prohibiting currency exchange operations for foreign currency, including U.S. dollars from 1996 or earlier series. Based on citizen appeals, the NBU identified two main issues:

1. Problems during the exchange of banknotes with significant wear or damage.
2. Issues with banknotes issued many years ago.

If a banknote shows signs of significant wear or damage, regardless of the year of issuance, customers may be offered a collection (incasso) operation. Incasso in foreign currency exchange refers to a banking operation where heavily damaged or worn banknotes are accepted by the bank for further transfer to the issuing country, where they are exchanged for banknotes fit for circulation.

Conditions for Incasso Operations

According to the NBU, incasso operations can be performed by authorized institutions with agreements with foreign correspondent banks. The degree of wear of foreign banknotes is determined by the central banks of respective countries, such as the U.S. Federal Reserve System for dollars, and is not subject to NBU regulation. Incasso fees are set by banks under Article 47 of Ukraine's Law "On Banks and Banking Activity." Information about these fees must be available to customers.

Exchange of Undamaged Banknotes

Banknotes without significant wear must be accepted for exchange by licensed institutions without an incasso operation. Hence, no additional commission should apply. Moreover, the NBU prohibits authorized institutions from setting restrictions on the denomination or year of issuance of foreign currency banknotes, provided they remain legal tender in their issuing country. This applies to all U.S. dollar banknotes issued by the Federal Reserve since 1914.

Regulatory Amendments

To address issues with worn foreign currency banknotes, the NBU issued Resolution No. 75 on June 20, 2023, amending the "Regulation on the Structure of the Foreign Exchange Market of Ukraine." The resolution prohibits banks and non-banking institutions from refusing to exchange foreign currency banknotes that:

• Fully match the design and security features described on the official websites of the foreign central banks.
• Are verified as authentic using appropriate equipment (e.g., machines with ultraviolet, infrared, and magnetic control functions).

Additionally, the NBU abolished the list of minor wear characteristics for banknotes, ensuring uniform treatment of all foreign currency banknotes except those significantly damaged or worn.

Conclusion

Current currency legislation and NBU regulations clearly define the requirements for foreign currency exchanges. Licensed institutions cannot refuse exchange or impose additional commissions if the banknotes lack defined signs of significant wear. Furthermore, authorized institutions may not reject banknotes based on the year of issuance if they remain legal tender in their respective countries.

The NBU strictly prohibits refusals to exchange banknotes that align with foreign central banks' design and security specifications, provided their authenticity is verified.

If you encounter a refusal to exchange foreign currency due to its year of issuance or unjustified claims about its condition, you can:

1. Submit a complaint to the management of the bank or non-banking financial institution.
2. If unresolved, file a grievance with the National Bank of Ukraine via the following link: https://bank.gov.ua/ua/consumer-protection/citizens-appeals and request an investigation.