As ‘Dollarization’ Grows, Russians Disdain the Ruble : Currency: For light bulbs and tickets to the Bolshoi, foreigners--and locals--are forking over greenbacks.

MOSCOW —  The kind-faced old babushka wandered innocently into the M&S; Supermarket near the Kremlin and stood blinking at the vivid colors of the Western food and liquor on its shelves.

“Are you open?” she asked Mikhail Kosarev, the young guard just inside its entrance.

“This is a hard-currency store, Grandma,” he said with a condescending smile.

“Oy!” she exclaimed, as bewildered as if she had stumbled into a men’s room or a private party. She slipped quickly out the door. “I didn’t know. . . .”

She didn’t know that on the most central street in Moscow, just steps from Red Square and the Bolshoi Theater, about half of the stores refuse to accept the national currency, the ruble, for most or all of their goods.

What used to be a simple apteka , or drugstore, is now a pharmacon , advertising Nivea skin lotion and German antacid tablets for valiuta , or hard currency.

The Cosmos cafe, which used to host hundreds of shoppers seeking an ice-cream break, is now a posh establishment selling clothes for dollars and charging $5 for evening admission to its upstairs bar. Across the street, Muscovites are confronted with the imposing gold-lettered, English-language sign of the “Waltham Shopping Center” and the equally inaccessible “Royal Fashion.”

This is the “dollarization” of Moscow, the most visible evidence of the creeping conquest of Russia’s weak ruble by well-muscled currency from the West.

Services and goods for foreign business people and tourists have long been sold largely for dollars here. But now, with inflation running at about 25% a month and the ruble’s exchange rate still plummeting, the old greenback is king in Russia as never before.

From sales of apartments to sales of light bulbs, from home repair services to tickets to the Bolshoi, Russians are turning up their noses at the ruble and demanding dollars--not only from foreigners, but from each other. German marks, French francs and British pounds will also do, but the dollar is the currency of choice.

“The danger is that the national currency is dying,” said Misha Berger, a columnist for the daily newspaper Izvestia. “More and more people ask for dollars in the most basic of daily situations.”

Russian President Boris N. Yeltsin, struggling to defend the beleaguered ruble, is waging an open battle against the dollar, issuing decree after decree limiting or banning dollar transactions.

Last month, he announced that “the ruble should be the only currency in Russia,” and last week a new rule took effect requiring all dollar stores to sell goods for rubles as well as for hard currency--although they could keep the prices in dollars and set their own exchange rates.

Many establishments did indeed put up signs announcing that they would accept rubles at the going rate--about 450 to the dollar--but many others had no intention of getting into the business of accepting suitcases full of rubles instead of neat dollars.

“Why should I take such a risk?” asked restaurant owner Ivan Rubin. “I buy my ingredients for dollars. Let’s say I spend $1,000 for ingredients and take in $1,500 in rubles. In the morning I can wake up and find those $1,500 have turned into $800 because the ruble has dropped again.

“I just can’t work for rubles.”

So far, the dollar’s might has always defeated Yeltsin’s attempts to rein it in. Either his decrees have been unclear, or not enforced, or the action has simply moved underground. City officials estimate that some two-thirds of nearly 1,000 dollar stores in Moscow, where they are most prevalent, do not even have basic permits for dollar trade.

Government economists estimate that at least $10 billion worth of dollars are now circulating in the Russian economy, used as basic tender by business people, consumers and professionals who want money that will retain its value.

When violinist Igor Klimenko needed his bow restrung recently, the craftsman who had formerly kept upping the ruble price announced that his services would now cost $10--in dollars.

“It’s getting out of control,” Klimenko said.

Along with the economic problems created by such a powerful mass of alien currency, dollarization poses a political threat as well, making Yeltsin look like he is selling out Russia to foreigners. When Russian hard-liners demonstrate, their signs often depict Yeltsin as a dollar-hungry Judas.

“Psychologically, it’s very painful; it’s painful and humiliating” for Russians to see so much being sold for dollars, said Andrei Illarionov, deputy head of the Russian government’s economic think tank, the Working Center for Economic Reforms.

“And people blame the government for it,” he said. “They say the government made the rich richer and we get poorer and poorer and poorer. In such conditions, people stop believing in democratic values, they stop believing in the market and stop believing in their president.”

Perhaps the most potentially explosive aspect of the dollarizing here is its creation of two distinct classes in Russia--those who earn dollars and those who do not.

“It’s a big problem--the appearance of a consumer elite,” said Berger of Izvestia. “There’s a rift in society that stems not from who invests capital but from who has access to a dollar income.”

For those who work for export or foreign firms, even a minimal dollar salary--$25 or $50 a week--appears princely in a country where the average ruble salary now amounts to about $15 a month.

“A lot of people have been turned into second-class,” complained an elderly woman in GUM, the enormous, 100-year-old department store on Red Square. Once a showpiece of purely Soviet production, GUM now hosts the likes of Benetton, the French department store Galeries Lafayette and even an outlet of Lego, the toy store.

“It’s very bad that these stores are for hard currency,” she said. “They should trade for our money. It’s not as if our salaries or pensions are in dollars.”

Moscow city officials say the dollar stores benefit everyone in that the taxes and licensing fees they pay in dollars go mainly toward imported parts for the factories that process Moscow’s food.

Nonetheless, said Svetlana Lokhtina, head of the Moscow City Council’s valiuta department, it’s annoying when “we all come to work and have nowhere to buy anything,” because all the stores in the center demand hard currency.

Even one of Moscow’s main advertising magazines, Everything for You, offers apartments, country houses and even musical instruments in large part for dollars.

Yeltsin’s decrees may try to stem dollarization, Illarionov said, but only natural economic processes can really stop it. Until inflation drops and until banks offer higher interest rates--so that people want to keep their money in banks instead of in dollars--the problem will continue.

Berger commented that perhaps the most depressing aspect of dollarization is that when he goes into dollar stores to spend the hard-earned money he gets writing for Western publications, the service is as rude and negligent as it is at his grungy neighborhood vegetable store.

“Nothing can save us,” he said wryly. “Not even dollars.”