It's been more than a decade since the U.S. dollar became the currency of choice in much of the former Soviet Union, which was then reeling from the collapse of the command economy. Reliable and popular, the American currency dominated the lives of millions of CIS citizens for years. Even now, as its value has weakened against other major world currencies, the dollar continues to reign supreme in at least one former Soviet republic -- Armenia.
Yerevan, 2 February 2004 (RFE/RL) -- Armenia's decade-long love affair with the U.S. dollar appears to be going strong. Financial data and anecdotal evidence show that Armenians still trust the dollar more than other world currencies that have seen their value grow over the past year.
Europe's common currency, the euro, has failed to soften the greenback's popularity in Armenia -- despite draining the dollar of nearly one-fifth of its value, and despite the European Union's status as Armenia's main trading partner.
The Armenian national currency, the dram, has fallen by almost 14 percent against the EU currency since January 2003, effectively pegging it to the dollar. The euro still makes up a small portion of foreign-exchange accounts in local banks and various interbank operations.
According to Tigran Sarkisian, the chairman of Armenia's Central Bank, Armenians remain loyal to the dollar largely out of habit. "It's no secret that, for citizens of the Republic of Armenia, the dollar is the main currency for savings. There are several reasons for that, the first of which is their confidence in the dollar. Armenian citizens prefer and have for years preferred to keep their savings in dollars."
Dollar equivalents are routinely included on the price tags of more expensive items.
Evidence of that confidence is easy to find in Yerevan's myriad currency exchange offices, where dollar-dram conversions remain by far the most common cash operation. Traders there like Artur Nazarian say little has changed over the past year.
"It's mainly [sales and purchases of] dollars. I guess people trust the dollar more because they are used to it. The euro is still a new currency."
This attachment extends to other parts of the Commonwealth of Independent States. It has its roots in the turbulent era of the early 1990s, when hyperinflation wiped out people's Soviet-era savings and left millions enduring an economic slump -- a slump that was particularly harsh in the South Caucasus.
That bitter experience taught Armenians to put their trust only in a currency that holds sway around the world. Even now, most Armenians lack long-term confidence in their own currency, even though tight monetary policies have kept the dram unexpectedly stable.
At 566 to $1, the dram -- in dollar terms -- is now worth as much as it was two years ago. Officially, it is the only legal tender in Armenia. Businesses are forbidden from accepting dollars or any other foreign currency in exchange for their goods and services.
In practice, however, this restriction is widely ignored -- not least because many people continue to use the dollar as their main monetary unit of measure. Dollar equivalents are routinely included on the price tags of more expensive items, and many shops include onsite currency exchange booths.
As a result, Armenians appear in no hurry to convert their bank deposits to euros. Ashot, who owns a drugstore in downtown Yerevan, says the dollar's recent decline does not worry him: "It doesn't really matter. The dollar is a stable currency, we're used to it, and America is more powerful [than Europe]. After all, America hasn't collapsed, has it?"
Also limiting the euro's spread in Armenia is the fact that the country remains heavily reliant on regular remittances from tens of thousands of Armenian nationals working abroad, mainly in Russia and the United States.
Armenia's Central Bank estimates that last year Armenian expatriates sent home more than $500 million -- nearly as much as the government budget for 2003.
As for the dollar's steady drop in value, Sarkisian says that so far, it has had a minimal impact on Armenia's struggling economy: "The strengthening of the euro primarily hits importers and consumers of [EU-made] goods priced in euros. But it must be noted that those make up a tiny proportion, because the goods that we import [from the EU] are mainly priced in U.S. dollars."
Official figures show that EU countries accounted for just under one-third of Armenia's external trade in the first nine months of 2003. By comparison, commercial exchange with the U.S. stood at less than 10 percent of the overall turnover.
Sarkisian believes that this alone necessitates a diversification of Armenia's international assets, currently worth $460 million. But only a small part of them were converted to euros last year. As much as 80 percent of the bank's hard currency reserves are still kept in dollars.