Ukraine markets in everything

by on March 2, 2009 at 12:08 pm in Economics | Permalink

Better than nothing:

A new internet-only exchange, the so-called Deposit Exchange, has
opened in Ukraine. It enables people whose bank deposits have been
frozen in banks of questionable solvency to sell the money in those
deposits at a discount. The buyers of the frozen deposits, although
they cannot withdraw the money, can use the full value of the deposits
to cover the value of loans issued by the banks for home, car and land
purchases on which customers have defaulted, and thereby take
possession of the repossessed property. Currently the discounts on
buying a frozen deposit are in the range 10-34% (Lenta.ru, in Russian).

I thank Matthew Bown for the pointer.

Oskar Shapley March 2, 2009 at 1:06 pm

Mr. Potter would be proud.

Anonymous March 2, 2009 at 2:20 pm

Brilliant. Now all we need is a California Tax Refund Exchange.

Leo March 3, 2009 at 5:04 pm

This internet-based exchange is basically hi-tech version of the post-Soviet barter economy. In the early 1990s companies used barter to overcome liquidity constraints and credit crunch. The concept of barter is well summarized by Russian proverb “A soap is swapped for a needle”. So the old buddy is coming back to solve the same problems. We’ll see how it’ll work.
From what I know, people prefer to sell deposits for cash or exchange deposits for consumer goods in person. There are several working mechanisms at present moment. The most straightforward approach is a purchase of someone’s deposit in bank A at a discounted rate in order to use it as a credit payment in the same bank. While demand side of this transaction is more than less obvious, a supply side may reasonably hesitate to do this because of the following reasons. In a case of bank A’s bankruptcy, Ukraine’s National Bank (NBU) will reimburse deposits up to $9,000. Moreover, according to NBU, banks should start making regular payments on frozen deposits, not exceeding $500 per day, this or next week. And, finally, consider an irreversible partial loss (10-30%) of your deposit in case of its sale to the third party. And going back to the demand side, I should mention that banks are extending grace periods for couple months where the extension period depends on each bank individually. Yet no banks reported a transfer of deposits to pay off the third party’s credit payments.
The second barter mechanism which is working now is exchange of someone’s deposit in bank A for someone’s product/service who needs to make credit payments in bank A. This transaction mostly works for construction companies which suffered a lot from 30% drop in housing prices and temporary credit crunch. Several banks reported that kind of transaction.

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