Ukraine makes plans to permanently ditch US dollar for the euro

Ukraine is preparing to drop the US dollar as its anchor currency and replace it with the euro, as confirmed by Central Bank Governor Andriy Pyshnyi.

In a written statement to Reuters, Pyshnyi reportedly said this decision comes as Ukraine deals with a fourth year of full-scale war with Russia and leans further into economic and defense partnerships with Europe.

He said, “This work is complex and requires high-quality, versatile preparation,” calling it a significant review process already underway. Pyshnyi explained that the euro might replace the dollar as the central reference point for the hryvnia, Ukraine’s national currency.

The change is being studied due to many factors: the possibility of joining the European Union, growing instability in the global financial system, and increasing fractures in worldwide trade. Pyshnyi said the EU’s defense role and support for Ukraine are also making the euro more attractive than the dollar.

For now, the dollar still drives international transactions, but Pyshnyi noted that euro-denominated deals are slowly gaining ground in most parts of the market.

Trump’s tariffs and dollar drop add to Kyiv’s urgency

The decision comes at a time when President Donald Trump, now back in the White House, has slapped aggressive tariffs on imports. These tariffs, some of which are being called the highest in a hundred years, have made many countries question whether the dollar should remain the world’s reserve currency.

Since Trump’s return, the dollar index (.DXY) has lost more than 9% compared to other major currencies. Investors are now pulling away from dollar-based assets.

Ukraine isn’t just looking at currency from an economic standpoint. The country is also reacting to a temporary freeze in military aid from the US, a decision made by Trump. Meanwhile, European leaders have publicly pledged to help Ukraine’s army stay strong, but actual delivery on that front has been slow.

Ukraine has also signed a deal with Washington that gives the US preferential access to its mineral resources, which ties into reconstruction funding.

Pyshnyi acknowledged that while the dollar still dominates currency markets, euro usage is growing. “Transactions with the US dollar continue to dominate all segments of the FX market,” he said. “But the share of euro-denominated transactions has been rising in most segments, though so far moderately.” He didn’t go into more detail.

Ukraine adjusts currency strategy as EU membership talks continue

Since its launch in 1996, the hryvnia has always been tied to the dollar. That changed after Russia invaded in February 2022. Ukraine locked its currency to the dollar at an official rate of 29, trying to prevent capital flight.

But due to building fiscal imbalances, the central bank was forced to devalue the hryvnia. In October 2023, Ukraine moved to a managed exchange-rate regime, still using the dollar as its reference, mainly to guide foreign exchange interventions and to manage market swings.

That system might not last much longer. Pyshnyi confirmed that the National Bank is now studying whether to fully switch the hryvnia’s peg from the dollar to the euro. If adopted, it would change how the bank controls the currency and handles reserves.

The EU opened membership talks with Ukraine and Moldova about a year ago. Although the process is long and full of political requirements, it’s moving. In February, EU Commission President Ursula von der Leyen said Ukraine could join by 2030 if reforms continue. Moldova has already switched its own currency’s reference from the dollar to the euro on January 2, 2025.

Pyshnyi said that if Ukraine continues building its ties with Europe, it could boost investment and consumer demand. He predicted this would help economic growth reach 3.7% to 3.9% over the next two years. But he also said much of the outcome will depend on how the war plays out.

To support its budget and fund the war, Ukraine is relying heavily on outside financing. Pyshnyi said he expects Ukraine to receive $55 billion in external funds this year. That money won’t just cover the 2025 deficit. It will also be used to create a financial cushion for the coming years, especially since Ukraine is preparing for a drop in foreign aid.

“We project Ukraine will receive about $17 billion in 2026 and $15 billion in 2027,” said Pyshnyi.

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