KIEV, Nov. 19 – In a desperate attempt to prop up the local currency, the National Bank of Ukraine used its recently gained powers to introduce regulation forcing exporters to sell half of their hard currency earnings for hryvnias.

The NBU approved the regulation on November 16, a day after President Viktor Yanukovych had signed legislation that gives these powers to the central bank.

The hryvnia closed at 8.20 to the U.S. dollar in trading between commercial banks on Monday compared with 8.19/dollar on Friday, amid massive interventions by the central bank, which has been acting through a state-owned commercial bank.

The NBU has been trying to stop depreciation of the hryvnia since November 13 when the local currency has dropped to 8.30/dollar, or the lowest level in the past three years.

The downward pressure on the hryvnia was mostly reflecting widening trade deficit and weak foreign investments in Ukraine.

The resolution, which forces exporters to sell a half of their hard currency earnings, is aimed at increasing supply of foreign exchange on the interbank market, helping the hryvnia to regain ground against the dollar, an NBU official said.

Olena Shcherbakova, the head of the main monetary and credit policy department at the NBU, said exporters eventually sell at least 75% of their hard currency earnings on the interbank market. The exporters have about $8.5 billion in their hard currency accounts overseas, Shcherbakova said.

The measure is considered to be effective and helped to stabilize the hryvnia after financial meltdowns in 1990s, according to Oleksandr Yaremenko, a former head of the currency department at the NBU.

Meanwhile, Parliament is supposed to debate a controversial legislation on Tuesday that slaps 15% tax on any selling of hard currency by individuals. The proceeds from this tax are supposed to go to replenish the state-managed Pension Fund.

The draft, submitted by Vitaliy Khomutynnik, the head of the finance and banking committee in Parliament and a member of the ruling Regions Party, is aimed at discouraging the people from using hard currency in transactions within Ukraine.

"This bill is unique by the level of stupidity," Boris Kushniruk, an economist and a member of the opposition Ukrainian People's Party.

He said the bill will only increase the share of transactions handled by black market currency traders because people would not want to pay the "absurd" tax.

The NBU's foreign exchange reserves dropped 8.5% in October to $26.8 billion, as the central bank had used the hard currency to support the local currency ahead of parliamentary elections on October 28.

The hryvnia was facing downward pressure after the country's current account deficit widened to $9.3 billion in January through September, compared with $5.9 billion in the same period in 2011, according to NBU data. (tl/ez)