Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

But if the crisis took its toll on the entire region, the epicenter of the shock was Ukraine. In the emergency bailout of April 2014, the IMF had started its estimate of Ukraine’s economic situation from an exchange rate of 12.5 hryvnia to the dollar. The IMF had called on Kiev to impose currency controls to prevent capital flight, while letting its currency float and allowing domestic prices to adjust to whatever level would ensure the viability of government-owned gas firms. If this program had been adopted, it would have squeezed both ordinary Ukrainians and wealthy Ukrainians, who would see their funds trapped in a depreciating currency. Instead, the Ukrainian central bank did the reverse.80 It permitted billions of dollars to flee the Ukrainian banking system while using its precious exchange reserves to stem the decline in the exchange rate. While prices surged by 50 percent, the result was to favor the most wealthy Ukrainians, who swapped their assets into dollars at favorable exchange rates. All told $8 billion drained from the currency reserves. Whatever money was pumped into Ukraine simply bled out. With exchange reserves depleted to as little as $4.7 billion by February 2015, the central bank finally abandoned the exchange rate. As the European powers struggled to make diplomacy work and the hawks in Washington and at NATO headquarters were urging ramped-up military support, between February 5 and February 6 the currency plunged by 50 percent in twenty-four hour...