On November 10, a law “On Amendments to Laws of Ukraine on Certain Issues of the National Bank of Ukraine” came into force. The document dramatically changes the “face” of the NBU. In the column of the Minfin, Vitalii Lomakovych, Founder and Chairperson of the Board of the Growford Institute, adviser to the Minister of Finance of Ukraine, said about what changes to expect in the near future.
The day before that the Head of the NBU Kyrylo Shevchenko posted on his Facebook page that the implementation of the law “will strengthen corporate governance in the National Bank, as well as improve cooperation between the Council and the Board of the NBU”. In fact, these neutral phrases mean a real revolution in one of the most important government body.
Law No. 1811-IX introduces a large number of changes to the special law on the NBU, which make the NBU board almost inviolable, and the NBU Council will do only ceremonial functions in the context of monetary policy.
Nevertheless, in accordance with Article 100 of the Constitution of Ukraine, it is the Council of the National Bank of Ukraine that “develops the Monetary Policy Guidelines and exercises control over monetary policy implementation”, the Constitution mentions nothing about the NBU Council.
Until November 9, 2021, the Council of the National Bank of Ukraine had the power to analyze the effect of the monetary policy of Ukraine on the social and economic development of the country and develop proposals on amending this policy (former paragraph 3 of Article 9 of the Law on the NBU). In fact, it was the main (permanent) tool of the control that is mentioned in the Constitution.
Although in most cases the NBU Board actually ignored the proposals of the NBU Council (and NBU Council left it unanswered), the law gave chances that in the future the situation would change for the better and the NBU’s monetary policy would become more loyal to the Ukrainian economy. But it was not to be.
The Council is not the Council
From November 10, the NBU Council lost the opportunity to do (in full) what the Constitution requires of it – to control. The relevant item was simply removed from the text of the updated law on the NBU.
At first glance, it may seem that everything is not so bad, because the NBU Council retains the authority to exercise (in the manner prescribed by it) control over the implementation of monetary policy (paragraph 2 of Article 9).
However, a definition of this control appears in Article 1 of the Law on the NBU and here it is appropriate to give an exact quote:
“control over the implementation of monetary policy – an annual assessment of the consistency of monetary policy of the National Bank of Ukraine with the achievement of inflation targets set by the Monetary Policy Guidelines in the medium term, taking into account current and projected economic and financial development of Ukraine and the world for the National Bank of Ukraine to fulfil its main function”.
This large definition hides rather simple essence. First, the NBU Council can assess the actions of the Board only in terms of the impact on inflation, although it is obvious that there are much more objects of influence of monetary policy. Secondly, the NBU Council will do this only once a year. And thirdly, it is simply impossible to assess the current actions of the NBU Board in terms of the impact on inflation in the next three years. That is, the definition of control simply makes this control impossible.
According to the previous version of the law, the NBU Council was entitled to appeal to the Verkhovna Rada and the President in case of improper fulfillment by the NBU Board of the NBU Council decisions, which are binding under the law (former Part 2 of Article 9). From November 10, the NBU Council lost this opportunity.
A completely new Part 2 appeared in Article 9 of the Law on the NBU: “Members of the Council of the National Bank of Ukraine bear joint responsibility for the decisions and activities of the Council of the National Bank of Ukraine as a collegial body.” It was interesting to learn how all members of the NBU Council can bear joint responsibility for the decisions taken by a simple majority of votes. And if a particular member of the NBU Council voted against? Therefore, this provision of the law will work only in one case – when no one will bear any responsibility.
Separation of the NBU from the state
According to the new version of the law, the NBU Council is prohibited from interfering not only in the activities of the Board, but also in the activities of the NBU Chairman and each Deputy Chairman separately. This is where a story of the reprimand given to two Deputy Chairmen of the NBU for their public speeches comes to mind. Well, the NBU Council will not allow itself more such “disgrace”.
The NBU Board, on the other hand, loses the unpleasant obligation to inform the NBU Council of the results of its consideration of the NBU Council recommendations (former part 3 of Article 13 of the Law on the NBU).
Important is another innovation that turns the concept of transparency and accountability of the NBU to society into an empty phrase. According to the previous version of the NBU Law, the NBU Council decisions were subject to disclosure, unless they contain national, banking or professional secrets. Now only decisions, the publication of which is mandatory under Article 9 of the Law, will be subject to publication. That is, it is quite possible that in future the society will have access to only one decision of the NBU Council per year – on the approval of Monetary Policy Guidelines.
The “icing on the cake” is the removal of the provision that the National Bank of Ukraine supports the economic policy of the Cabinet of Ministers of Ukraine, provided it is not detrimental to the stability of the monetary unit of Ukraine from Article 52 of the Law on the NBU. Here we can be grateful to the authors of the law for openness.
It is impossible to understand why the state of Ukraine voluntarily loses control over one of the most important bodies of state power, in fact, one of the attributes of independence.