Web rumor sparks weekend currency panic

  • 2007-11-28
  • By Steve Roman

TALLINN - Currency exchange points in Tallinn and elsewhere in Estonia were inundated over the Nov. 24 - 25 weekend after false reports of a planned devaluation of the kroon appeared on Russian-language Web sites.
Kuno Raak, chairman of the Tavid AS exchange, told The Baltic Times that the unusually high volume of trading in kroon for euros and other currencies began Friday evening and halted Sunday when the supply of euro cash at nearly all exchange points in Tallinn was depleted. He said that the demand for euros was twice what it would be over a normal weekend.

Nearly all of those who came to exchange their cash were Russian speakers.
AS Hansapank and SEB Eesti Uhispank, the two biggest banks in Estonia, said people also rushed to sell kroons in northeastern Estonia where there also is a high concentration of Russian speakers, the Postimees daily reported.
The Bank of Estonia reacted on Nov. 26 with a statement refuting the rumors and urging the public not to be swayed by false information.
"The peg of the Estonian kroon to the euro is 15.6466 as before and the peg will persist until the adoption of the euro," the statement read.

In an interview on Estonian Television, Bank of Estonia Governor Andres Lipstok said the kroon was in no danger of being hurt by the trading since, under its currency board system, the central bank is required to back money in circulation with foreign currency assets.
"This was blackmail directed by someone and I am really sorry that some people bought it and went to exchange their krooni," Lipstok said. "They were the only ones who suffered."

The devaluation report first appeared on Nov. 9 on the Arif.ee Web site where an announcement states  the Estonian government had decided that "tomorrow night," under agreement with the central bank, the official euro peg would be readjusted to 24.64 kroons. The report appears under the heading of "economic training," inviting users to comment on what they would do if such an event occurred.
However speculation of a political motive behind the rumors started when it was found that the false report also appeared 's again under the heading of economic training 's on the Web site of Night Watch, the radical group that organized demonstrations in defense of the Bronze Soldier monument.
Finance Minister Ivari Padar told Radio Kuku on Nov. 26 that those responsible for spreading rumors should be prosecuted, however Estonia's Security Police and public prosecutors have said that they saw no element of a crime in the devaluation rumor.

Security Police superintendent Olari Valtin said that his agency is nevertheless interested in finding out what went on behind the scenes.
"Both the Security Police and the public already know that the pro-Russian movement Night Vigil which spread the fake news is directed from Russia, therefore the Security Police's interest in the incident is justified," he was quoted by BNS as saying.
Morten Hansen, Head of Economics Department at the Stockholm School of Economics in Riga, said that panics like the one in Estonia can indeed have an effect on the value of the kroon.
"It is basically the only way to force a devaluation here. If everybody, or at least really many, sell their kroons, the central bank will not be able to buy all of them with their foreign reserves."

Latvia was hit with a similar panic in March when devaluation rumors spread by SMS messages forced a mass selling of the local currency.