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Euro bids to overcome Russians' love for dollars

Order dumplings at a busy diner near the Kremlin, and the price in the menu is based on U.S. dollars. Landlords negotiate apartment rents in dollars.

The dollar is Russia's second currency, but come Jan. 1, the greenback will face a new competitor: the European Union's euro.

The EU's Moscow office launched a publicity campaign Thursday to prepare Russians for the euro. Economists are divided over how much of a stir it will cause in Russia _ where the number of dollars in circulation is second only to the United States. At the same time, confidence in the ruble is growing.

"Increasingly, I think we'll see the transfer to a ruble economy rather than anything new," said Richard Jackman, an expert on the Russian economy at the London School of Economics. "The attraction of holding dollars or anything else as a hedge against a collapse of rubles may be fading."

Russia's economy has bounced back after the 1998 financial crisis and continues to grow even as other world economies slide.

That recovery has been accompanied by a stabilization in the ruble _ its value has remained largely unchanged for most of the year _ and growing consumer confidence among people who used to stuff their piggy banks with dollars as a precaution against inflation.

Yet for most Russians, the dollar remains the currency of choice. By some estimates, 50-billion U.S. dollars are circulating in Russia. The Russian government holds its foreign reserves mainly in dollars, and Russia receives a large part of its income from exporting raw materials, such as oil and metals, all priced in dollars.

Yet the European Union, Russia's biggest trading partner, is eager for Russia to back the euro, which replaces 12 national currencies from the German mark to the French franc. In May, the 15-nation EU asked Russia to consider using the euro in its trade relations with Europe, promising "long-term economic and monetary implications."

Russia agreed to examine the request, but made no promises.

Jackman sees little reason why Russia should accept payments in euros, which started trading as a paperless currency almost two years ago.

"The continuing weakness of the euro relative to the dollar is obviously, to a significant extent, to the advantage of oil-exporting countries like Russia" and their dollar revenues, he said.

Russia also is pursuing new trade agreements with the former Soviet republics, where the dollar dominates all contracts and a future role for the euro appears unlikely, said Christof Ruehl, chief economist with the World Bank in Russia.

Another big hurdle to acceptance in Russia might be the euro's relative obscurity here. The EU attempted to address that Thursday by opening an exhibition on the euro at Moscow's upscale GUM shopping center, across Red Square from the Kremlin. Customers visiting the expensive, mainly Western shops can pick up leaflets in Russian about the euro.

The EU's low-key public relations campaign contrasts sharply with the major effort the U.S. Treasury made in Russia when introducing a new $100 bill in 1996. The United States sent out a million pieces of literature and more than 800,000 videotapes to bank cashiers _ and the change went smoothly.

"We don't pretend that we can reach everybody," said Jean Rodriguez, spokesman for the European Central Bank, which oversees monetary policy for the euro zone from its Frankfurt, Germany, headquarters.

While some Russians who have squirreled away German marks _ the second most popular foreign currency _ might be caught napping, economists aren't expecting pandemonium come Jan. 1 as Russia is such a dollar-dominated economy.

Many said it would take time for Russian businesses and investors to warm to the euro and the convenience it offers those operating in Europe. For most Russians, the euro would simply be a way to diversify savings held in dollars, and increasingly, rubles, economists said.

Oleg Vyugin, chief economist at Troika Dialog brokerage, predicted "some long-term shift from the dollar to the euro in business connections."

"But it will take time . . . and the dollar will still occupy an important place in the minds of the Russian population."