Ukraine rebel statelet plans own banking system

Even as the fighting rages in east Ukraine, the unrecognised Donetsk People's Republic says it's pushing on with ambitious plans to roll out a fully independent financial system within two months.
The self-declared government of the rebel republic has set up a People's Bank to handle the improbable task -- a sort of nascent rebel central bank for a shrinking statelet under siege from Ukrainian forces.
The bank is housed in a former regional branch of the National Bank of Ukraine which was abandoned when rebels took over the city and the separatists claim to have a team of "experts" operating there in the middle of a war zone.
The official put in charge of tax collection, the treasury and the banking system, Maxim Ivanov, said the republic may even come up with its own currency.
"It would still be called the ruble. This is Slavic land and Slavs always use the ruble," Ivanov said.
Ivanov said that he was working with a team of around 30 people -- including highly-qualified local inhabitants and some experts from Kazakhstan and Russia.
With the EU and US pressing sanctions on Moscow and the rebels, he said Russia would be a "more suitable" business partner for the southeast Ukraine as well as the model for the new banking system.
But he acknowledged reforms would be an uphill struggle, estimating that only "20 to 25 percent of the economy" in the coal-rich industrial heartland is still functioning.
"Eighty percent of the shops and 70 percent of the cafes and restaurants are closed," he said.
"Once the fighting ends, we have to rebuild."
- Destroying cash -
Ukraine's central bank tightened the screws on the rebel efforts last week with an emergency decree for insurgent areas that includes an order for banks to physically destroy any extra cash reserves with paint to prevent them from falling into "terrorist" hands.
Ivanov said reserves were now "de facto" in rebel hands and that the new authorities were helping banks with cash machine distribution.
But a senior banking source in Donetsk who spoke to AFP on condition of anonymity said cash distribution was "our number one problem".
"The cash machines are working for now but we don't know how long this can last," said the source, adding that a lot of his staff were leaving -- forcing the closure of branches.
The source said that banks were still registered in Ukraine and not yet under rebel control, adding: "There's been no change".
Asked about destroying cash, he said he was "not sure how it would work" since officials from Kiev need to oversee the procedure.
Ivanov dismissed the Ukrainian central bank's emergency rules as self-destructive.
Pointing out that around a fifth of Ukraine's population lives in the southeast -- some of which is under rebel control -- he said: "Can you imagine what would happen to you if you lost a fifth of the blood in your body?"
Pavel Gubarev, one of the main ideologues behind the insurgent movement, also condemned the central bank order but said it was "de facto acknowledging our independence".
"This is basically now an offshore, tax-free zone," Gubarev told reporters, adding: "They've taken their banking system out of here. They've switched it off".