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Euro Is Catching On in Russia

January 26, 2002

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MOSCOW (AP) _ Russians were doing double-takes in the GUM department store the other day: the suits, perfume and dresses normally priced in dollars or rubles were marked in euros.

The euro has caught on more than experts predicted, but economists say the new multicolored notes likely won’t replace the greenback as the currency of choice in a country where citizens take their hard cash seriously.

``For the majority, it’s, ‘Dollar rules.’ They’re not even going to think about the euro,″ said Peter Westin, senior economist with Aton Capital Group in Moscow.

Just after the Jan. 1 debut of euro bank notes and coins, Russian banks experienced a larger than expected volume of exchange in euros _ more than the combined amount of the 12 European currencies that the euro replaced.

Alfa Bank, the country’s largest commercial bank, imported more than $16.2 million from Dec. 25 to Jan. 11 _ about 40 percent of the trade in U.S. dollars. A year before, the trade in European currencies was only about 10 percent of that in U.S. dollars.

Sberbank, the largest state-run bank, said it sold more than $11.2 million in the first half of January _ almost 12 percent of the foreign currency sold in that period, up from about 3 percent last year for all European currencies combined.

The early euro buyers likely are getting money for European travel and not for savings, Alfa Bank spokeswoman Svetlana Smirnova said.

They also are looking to diversify their savings, Westin said.

Russians know their U.S. dollars well. Their main economic indicator is not a stock index or the Central Bank interest rate, but rather the daily exchange rate with the ruble. Now it is just above 30.

Most Russians hold their savings at home in so-called mattress dollars because of the economic turmoil that has racked the country since the 1991 collapse of the Soviet Union.

The value of those mattress dollars has been estimated at as much as $40 billion.

With all the previous uncertainty, people aren’t likely to switch quickly to a new, untested currency.

``Nobody thinks they’ll get their money back,″ said Diana Maduabum, working at an exchange booth in a street kiosk selling candy bars and drinks.

She said very few people had come to change their rubles for euros: ``People are already used to the dollar.″

No euros are in sight through the small glass window where Maduabum deals with customers, and the new currency isn’t mentioned by several who stop by. One man buys $10, carefully holding the bill to the light to make sure it’s authentic before walking away, while another asks if he’ll get a better rate for changing $100 into rubles.

The euro also has been weak since its 1999 launch, while the dollar has risen consistency, even during a recession and in the aftermath of the Sept. 11 terrorist attacks in New York and Washington.

However, the euro could make inroads because of Russia’s trade with Europe.

Russian Finance Minister Alexei Kudrin said last month the euro could bring the Russian and European economies closer together and should decrease the cost of foreign trade transactions.

But Kudrin said the euro still wouldn’t replace the dollar. Russia’s imports remain small compared with its exports in valuable commodities such as oil and raw metals _ all of which are internationally denominated in dollars.

Most of Russia’s foreign currency reserves also are in dollars. The Central Bank said the amount in euros is so small it wouldn’t even give a figure.

Trade is the reason that price tags in the GUM department store on Red Square _ which leases space to such retailers as Hugo Boss, La Perla and Kenzo _ are denominated in euros.

Because it’s illegal to mark prices in dollars, price tags across Moscow regularly are marked in ``conditional units″ _ essentially a dollar equivalent at a less-advantageous rate.

But at many stores in GUM, prices are in ``Boscars,″ a unit tied to the euro invented by the Russian company Bosco di Ciliegi that runs the shops.

The company decided to implement euro pricing because it deals mainly with European firms for its imported clothes and cosmetics, Bosco spokeswoman Olga Yudkis said.

That was a welcome surprise to last week’s post-holiday sales customers, who thought the numbers in the hundreds _ rather than thousands as it would be in rubles _ were dollars as usual.

Because of the euro exchange rate, they got an extra 10 percent off.

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