Unlaundered money buys less in Latvia

RIGA - Michael Foster was not happy. He had learned that surcharges on money exchanges could drop the posted rate as much as 5 percent, from 0.57 to 0.5415 lat per dollar.

"I took out a brand new C-note and looked at it. My bank, in counting its money, had put a stamp on it, a small letter B in faint, blue ink. I had another $100 bill with no stamp, crisp and clean, but its date was 1990," Foster said. "I knew it would cost me extra to spend money in Latvia."

Foster, as other tourists or expatriates working in Latvia, found that his money could not be exchanged for lats at face value if the notes are unkempt. Even crisp is not good enough to avoid a 1 percent to 5 percent surcharge ($1 to $5) on exchanges of $100 bills if the bill's date is prior to 1990.

Foster shopped his money around, first to a walkup window near McDonald's at Freedom Monument Square. "The cashier took the bank note, turned it over, and looked at it closely.

"It has that on it, he said, pointing to the blue 'B.' It will be 1 percent surcharge."

"What!" said Foster, motioning the clerk to put his bank note back through the cash drawer.

At the next stop, Unibanka's exchange office on Kalku Street, the bank note was less welcome.

"I am sorry. There must be a surcharge. Three percent," said the cashier.

Foster toted the note across the street to Hansabank Latvia.

The teller pointed to the blue stamp on the bill and shook her head. "Five percent," she said.

Foster shook his head, took back his bank note and did a 180 through the door back down the street. One percent at the walk-up window seemed to be the best deal.

Handling foreign cash has its cost and its risks, some bankers say.

Nobody likes wrinkled American bank notes, said Ugis Venturis, chairman of Hansabank Latvia's retail banking division and a member of the bank's board.

"U.S. dollars are a second currency in Latvia, Venturis said. People like to have $10 to $100 against bad times. They like to keep nice bank notes at home, not wrinkled, dirty ones."

The bank doesn't like to end up with piles of old bills dated prior to 1990 when the demand is for new. As a result, the banks must put the old bank notes on planes out of Latvia.

"We have to move surplus old bank notes back to the Western world," said Venturis. "Handling cash is expensive for banks. Just passing the notes to the vaults through security has its expense."

Banks have to make a profit, said Teodors Tverijons, president of the Latvian Commercial Banks Association.

"Banks earn money by interest or by surcharges for services. Money exchange is an operation for which customers must pay," Tverijons said.

The exchange service has costs, he said. Banks assume the risk of exchange rates, plus incur the cost of cashiers' work, training staff to handle different currencies, and the expense of security against counterfeit bills. Bank notes in bad shape must come out of circulation and go back to Western contract banks, another expense.

Distrust of old notes and frozen assets while old currency is in limbo waiting for redemption accounts for the surcharge on exchange of certain bank notes, Inese Pommere, Bank of Latvia spokeswoman said.

"Though the United States' central bank has never withdrawn any bank notes from circulation, people lack confidence in old U.S. dollars, Pommere said. "The reason why the population of Latvia distrusts the old dollar bank notes could be the weak anti-counterfeit measures."

Latvia's central bank does not govern the practice of charging commissions on undesirable bank notes. Banks that charge commission for the old, wornout and damaged bank notes explain it by the costs incurred mainly from the freezing of assets during the time it takes to collect a batch of notes to send to the corresponding bank abroad. During this time, the money lies 'frozen' in a safe. Some banks provide exchange services free-of-charge to regular customers.

"Of course, banks use surcharges for making some profit, as there is practically no risk in accepting old bank notes," Pommere said.

As for the charge, caveat emptor, let the buyer beware, as the amount is unregulated and set only by the particular bank's marketing strategy, Pommere added.

Independent money changers charge less, Venturis conceded.

"Let people got to them for a lower charge, but if they want confidentiality and security, they'd better go to a bank," he said.

Perhaps Latvian residents who disdain crumpled American dollars are afraid they will have to pay a surcharge if they decide to turn the "rainy day" money back into lats?

Venturis did not say.

"I wish the pretext were a little more imaginative," Foster said. "I was naive. I thought American money was the currency that would be accepted almost as universally as Master Card."