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Published:February 4th, 2008 11:01 EST
Dollar still King in Chechnya underground currency Market

Dollar still King in Chechnya underground currency Market

By SOP newswire

By Claire Bigg, Akhmed Sultanov, and Amina Umarova

A man stands in a corner of a bustling market in Grozny, Chechnya's capital city. He is holding a thick wad of banknotes and waves them slowly, like a fan. Another man approaches him. "What's the rate for dollars?" he asks.

The man waving the cash gives him exchange rates for the dollar and for the euro, which these days has been faring better than its U.S. counterpart. A dollar will buy 24.50 rubles, he says; a euro, 36.

"Has it dropped?" the would-be customer asks, surprised by the dollar's poor performance. "Its rate fell worldwide," the currency dealer answers matter-of-factly.

Such scenes are a staple of everyday life in Chechnya. Throughout the North Caucasus republic, dozens of currency traders stand at markets and on roadsides, waving fistfuls of banknotes to attract customers. A popular joke in Grozny holds that the surfeit of currency traders, waving their bills, explains the city's windy climate.

Chechnya's thriving black market is the only way to purchase foreign currencies there. While most Russian cities are dotted with official currency-exchange booths, Chechnya -- where Russian forces continue to battle separatist militants -- doesn't have a single one.

Chechnya's illegal currency market is also one the few spots where the U.S. dollar is still king.

After the demise of the Soviet Union sent the ruble on a roller-coaster ride, devastating savings accounts and sending prices skyrocketing, the dollar became the unofficial currency throughout Russia.

Dollars were indispensable when renting out an apartment, opening a business, or trying to build up a nest egg to protect against the vagaries of an unpredictable future.

But this has been changing. In Russia, like in much of the world, the dollar's spectacular slide has dented its once undisputed supremacy. Six years ago, Russians kept 38 percent of their savings in foreign currencies, mostly in dollars. By the end of last year, the figure had dropped to 13 percent.

Aslan, a mechanic in Grozny, belongs to those who switched allegiances to the Russian ruble. "If I had a lot of money, I would keep it in Russian rubles," he tells RFE/RL. "The dollar and the euro are always rising and falling, they're not reliable."

Worth an average of 29 Russian rubles in 2004, the U.S. dollar now goes for around 24.60 rubles. The euro has also dipped a little against the Russian currency, falling from 37.50 to 36.20 rubles over the same period.

Despite the revival of the ruble, which has achieved remarkable stability under the influence of high oil prices, most Chechens remain loyal to the dollar.

"Some people listen to forecasts that the dollar is falling, but most think that this is part of some kind of special politics," says Amina, a 59-year-old Grozny resident. "They say past meltdowns, when people really suffered huge losses, were not predicted. People don't trust analyses and forecasts about the dollar."

She says the preferred currency for many of life's essentials is still the greenback. "Bribes here are still asked for and paid in dollars," Amina says. "Savings are kept in dollars. Those who work in the import-export business also use dollars."

Bucking A Trend

The U.S. dollar's enduring popularity in Chechnya is partly due to regional factors. Chechen businessmen importing goods from neighboring Turkey, like Astamir, have much to gain from trading in dollars.

"I trade with China and Turkey, and dollars are in demand there," he says. "If I bought euros here and took them there, I'd have to change them into dollars because goods are always paid for in dollars. So this would only cost me money."

Outside Chechnya, however, the dollar has lost much of its former prestige. Its steady slide against the ruble has also awakened a sense of pride for their currency among Russians.

The Kremlin has tasked the Russian Central Bank with coming up with an official ruble symbol. In 2006, deputies even toyed with the idea of slapping hefty fines on government officials caught publicly using the world "dollar." The measure also called for fines against businesses that continued to list their prices in foreign currencies.

But economists say it is too early for Russia to bury the dollar.

"In important financial operations, the price is usually indicated in dollars. On the whole, the dollar remains the reference point," says Natalia Orlova, chief economist at Alfa Bank in Moscow. "Of course, some prices are indicated in euros, because the euro is currently strong and consolidating, but this doesn't reflect a structural shift to the euro; this is a short-term effect. The dollar is still the anchor for price indices."

Original article can be seen here http://www.rferl.org/featuresarticle/2008/01/7c0ac7db-9fc3-4181-aef0-5da673afcf5a.html