In Russia, C is a sour note Money changing: Some Russians, who keep their life savings in U.S. $100 bills, fear that their modest nest eggs will vanish with the redesign of American currency.

January 28, 1996|By Clara Germani | Clara Germani,SUN FOREIGN STAFF

MOSCOW -- In the mind game that is called the Russian economy, nothing is more stable than the dollar -- except a new dollar.

So the U.S. Treasury's newly designed hundred-dollar bill is sending murmurings of financial panic through a nation that keeps its life savings in C-notes -- the old kind -- stashed under the mattress.

In Russia, a U.S. bank note can be worthless if it is creased, marked, or dated before 1990 -- it's a matter of psychology, not legality.

Imagine, then, what would happen to today's perfectly acceptable bills when a whole new style of bill appears.

Russians, whose short democratic history is a crazy quilt of banking scams and crippling inflation, have no trouble imagining disaster.

If confidence is lost in the old bills -- that is, if Russians think their life savings are soon to become worthless at the thousands of notoriously finicky exchange houses -- then there could be a stampede to switch them for new bills, plus the speculative frenzy that would go along with it.

Anticipating such panic, the Russian and U.S. governments have started a large-scale advertising campaign to "educate" Russians about the value of the dollar -- old or new.

The U.S. Treasury Department estimates that two-thirds of all the 380 billion dollars in circulation are outside of the United States.

Russia has the largest single foreign circulation of dollars -- about $15 billion to $20 billion.

A U.S.-operated hot line here is taking up to 200 calls a day from Russians concerned about the new dollar.

"All old notes will still be valid at full face value forever," said U.S. Ambassador Thomas Pickering at a news conference last week.

But try telling that to anyone here who has made the humiliating trek from bank to bank and exchange window to exchange window trying to get someone -- anyone -- to take a 1990 hundred-dollar bill with a grease smudge on it.

Who needs new bills?

If old bills are good, then why are new ones needed? To stay ahead of counterfeiters, answer U.S. officials -- the new bills have a larger, off-center portrait of Ben Franklin and a ultraviolet-sensitive security strip embedded in the paper.

"The whole civilized world knows that old hundreds will be valid endlessly," said Yevgeni Gontmacher, an economist at the Gaidar Institute.

"But in Russia this could take a different twist."

"An average person who has a medium sum of savings is usually economically illiterate and has never been to any commercial bank, and isn't likely to go to one now. So they will try to avoid future problems," he said.

Such people, he added, might try to dump their hundreds for smaller bills or even pay a commission to exchange old bills for new.

Different assumptions

He explained why typical Russians with a few thousand dollars in savings don't operate on the same assumptions as the rest of the modern world does.

Russians are deeply suspicious of private banks, which have failed or stolen money outright, he said.

They have seen inflation grind the ruble to the point that what bought a brand new automobile in 1990 wouldn't buy a pack of gum today.

In 1993, Russia changed the look of all its ruble denominations -- people with old rubles lost their money because when the government said it planned not to honor the old notes after a certain date, panicked Russian businesses immediately stopped accepting old notes.

So Russians typically change their rubles to dollars as soon as they get them -- and keep them that way as a safe savings tool.

The U.S. Embassy here, for example, reports that Russians digging into their savings occasionally use fresh new 1930s-era bills for visa payments.

"You can already see certain signs of panic, even now. Because people prefer to buy 50s and are refusing to take [old] hundreds," said Shamil Aymaletchinov, an official at the exchange windows of a Reliable Bank branch.

A source of income

"I know these bills will mean better protection [against counterfeiting]," he said.

"But undoubtedly exchange points are going to make money on it -- it's already become an article of income."

Indeed, even though the new hundreds haven't hit the streets here yet, the Russian Central Bank has attempted to calm the situation by getting major commercial banks to keep their commissions on exchanges of old bills for new to 2 percent.

So already, that means a Russian who holds a perfectly good U.S. hundred-dollar bill will have to pay $102 for a new hundred.

But competition has started.

Some banks are offering overnight savings accounts where a customer can deposit his old hundreds one day and withdraw new bills the next, but no interest will be paid, said Alexander Zagryadski, spokesman for the Association of Russian Banks.

Suspicious of a fast one

Russians are skeptical about all aspects of the redesigned dollars -- but it isn't the U.S. policy they are suspicious of, so much as it is their own countrymen they suspect of trying to pull a fast one in the circulation of the new money.

"Less displeasure is expressed with the U.S. than with our own powers that be, who will fail as always to ensure normal exchange procedures," observed Mr. Gontmacher.

"This isn't going to be a problem in other countries, but in Russia where panic is a normal thing, it will be," said Valeri Sviridov, a businessman who stopped to change dollars at a money-changer's storefront window in central Moscow.

Many Russians are worried about whether their savings are going to be threatened again by the new hundred-dollar bill, he said.

But his solution, he said, is to change all his savings into German deutsche marks.

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