CB Tells Russians to Ditch EU Cash

The Central Bank on Tuesday urged Russians to get rid of European currencies to avoid problems when the euro is introduced Jan. 1.

In a statement posted on its web site, the Central Bank advised people to convert their European cash into rubles or other "non-European Union currencies" or deposit their money in a bank.

The Central Bank did not offer additional counsel, and some experts doubt that it has a clear picture of what is going to happen when the euro is introduced.

"Put everything into rubles and play it by ear after the New Year," Alexander Yurov, a Central Bank department head, said at a press briefing this month.

Holders of European currencies, mainly Deutsche marks, which circulate by the billions in Russia, are facing a tough choice: They can convert them into dollars now and pay a commission; convert them into rubles to buy dollars or euros later and pay a commission; or deposit them and receive hard currency later, also for a commission.

Either way, currency dealers say Russians will be reluctant to travel to an exchange point or bank with a bag of cash.

Another option is to wait and convert after the initial panic over the euro conversion subsides. But dealers said this option, too, has drawbacks. If people wait and exchange their marks later, they may have to pay an even higher commission fee to local banks, who, in turn, will have to pay commission to German banks.

According to Dmitry Shestopalov, head of the retail projects department at Zenit bank, which deals in marks, major German banks have already said what the commission fees will be to cash out marks -- 0.5 percent to 0.8 percent, which is twice what Russian banks pay now to bring in marks. With only a few buyers for a currency that is being phased out, many Russian banks may simply take advantage of the situation and gouge their clients, Shestopalov said.

"There will be a few people who will want to make some money on this," he said.

Dealers said this possibility is what prompted the Central Bank to issue its warning.

Yekaterina Matveyeva, Promstroibank St. Petersburg's leading analyst, said people will just have to shop and compare to find the best option. For example, spreads between buying and selling prices for hard currency in St. Petersburg are wider than in Moscow, so people might hold their marks for several months until enough euros are brought into the country to meet the demand, she said.

Will the holders of small amounts of European currencies ultimately lose out in any case? Probably, yes, Matveyeva said.

Hard currency dealers said they have yet to see a big rush to sell marks, but the Central Bank's warning could prompt one.