Global Policy Forum

By Michael Wines

This country's official money is the ruble, but it takes only a stroll through an auto dealership, a pricey restaurant or a classy jewelry store to learn which currency is truly king. A check of price tags there, and in thousands of other establishments, reveals that most expensive items are denominated not in rubles but in U.E., pronounced "oo-yeh."

"Oo-yeh" is the acronym for uslovnaya yedinitsa, or "conditional unit." Which is the euphemism for a wholly mythical wampum, which, by sheer coincidence, corresponds exactly with the exchange rate of the U.S. dollar. Which is the uncontested monarch of Russian money, the symbol of Yankee economic muscle, the yardstick by which all lucre is measured.

Until now. Suddenly, oo-yehs are being denominated in euros.

After a decade in a dollar-driven economy, as many as one in four merchants who price their goods in conditional units have now switched from the dollar to the euro. Many have done so abruptly - in the last month, since the euro first surpassed the dollar in world currency markets. The euro is currently worth 34.42 rubles, well above the dollar's 31.78-ruble rate.

For Russians, who often bristle at American economic hegemony, the effect may be bracing. But it comes at a stiff price: the Citron C-3 sedan which sold in one Moscow auto salon for 13,000 oo-yeh ($13,000) on Dec. 31 costs 13,000 oo-yeh (E13,000, or $14,072.50) today.

"To some customers it makes no difference because they know nothing about the exchange rate difference between the euro and the dollar," said Alexander, a sales manager at the auto dealership who refused to give his surname. "For those who know the difference, they are somewhat upset."

Whether such creeping euroism is just a fad or a straw in the global economic winds requires an insight not so much into exchange-rate theory as into the Russian psyche.

On one level, the rise of the euro is undeniably a major change. Russians are believed to have hoarded as much as $50 billion in American dollars in coffee cans and under mattresses, the largest such stash of any nation on earth. Since well before the Soviet Union died off, the dollar has been regarded as a guarantee of stability - the instrument of choice for one's life savings, particularly in the 1990s, when inflation ran in treble digits.

While it is legal to hold dollars and other foreign money here - and exchange windows are common as stoplights - it is not legal to spend it. Hence the spontaneous appearance of the "conditional unit" in better stores and restaurants, as a way of pegging prices to the dollar and ensuring that Monday's 200-ruble, $8 beefsteak would not be a 300-ruble, $3 beefsteak on Tuesday.

The price remains constant but the daily value of the unit in rubles, the only spendable currency, floats in concert with the greenback. Although inflation has recently calmed to 15 percent a year and dropping, Russians' suspicion of their native currency has not eased.

"It's a psychological thing," said Valentin Dobrovinsky, an assistant sales manager at Arteks, a Moscow foreign-car dealership that prices its autos in both euros and dollars. "We actually have a ruble tax on all our goods," he noted, but "psychologically, it's easier to make these calculations in dollars."

But that is changing, he said. "More and more, prices are being denominated in euros, because European manufacturers and suppliers who sell things here are setting their prices in euros."

By official measures, 42 percent of Russia's imports come from Europe, and many are paid for in euros. Much the same currency pressures now weigh on ordinary Russians. Travel agencies increasingly price foreign airline tickets and vacation packages in euros, and the few Russians who open bank accounts tend to place their money in euro-denominated European banks.

"Russians find it quite difficult to get into the U.S. these days - Europe's next door," said Al Breach, the chief economist at the Moscow offices of Brunswick UBS Warburg, a European investment bank. "It's where they go on holiday. It's whose products they consume. It's more and more likely the currency they're going to use. So as it goes up against the dollar, they say, 'Hmm - maybe I should start saving in euros, too.'"

By some reports, the share of euro-based deposits has as much as quadrupled in some Moscow banks in the last year. Russia's Central Bank said Thursday that it had increased its euro holdings in the last year to 10 percent of its foreign reserves, up from 5 percent, while the dollar's share had dropped from 90 percent to 75 percent, reflecting the low return on dollar investments.

The rush to the euro is said to have provoked mild panic in some Russian towns, where citizens molded by decades of fear and uncertainty worried that their hoards of greenbacks were going to be rendered worthless by the euro's rise.

Breach looks forward instead to the day when a dark-horse currency will emerge to render the whole idea of oo-yehs and their euro/dollar equivalents moot at last.

"My hope," he said, "is that the ruble replaces both of them."

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