Estonian devaluation rumors fuel demand for euro

A message posted on Russian-language websites said Estonia had decided to devalue the national currency, sending mostly Estonia’s Russians to exchange their krooni for euros. Some sites dubbed the message as „a business training exercise.” The Bank of Estonia denied the rumors of devaluation on Monday, saying the current exchange rate will remain intact until the country joins the common European currency.

Estonia pegged its national currency to the euro at a rate of 15.6466 kroon, as part of the effort to join the eurozone. The rumor predicted the new exchange rate of 24.64 kroon per euro. „All the krooni in circulation are guaranteed by foreign currency reserves of the Bank of Estonia and all the krooni can be exchanged for the euro if necessary,” the Baltic nation’s central bank said in a statement quoted by the Baltic News Service on Monday. Tallinn offices of the currency exchange company Eurex ran out of euros, the head of the company Mihkel Rouk told Postimees (The Courier) website on Monday. The demand for British pounds has also increased. Finance Minister Ivari Padar told Radio Kuku on Monday that those responsible for spreading rumours should be prosecuted. Citigroup, Goldman Sachs and other banks have said the three Baltic countries - Estonia, Latvia and Lithuania - face an economic hard landing because of rising inflation and widening current account deficits.

Rumors spread about the Latvian lat earlier this year, when Latvians received text messages on their mobiles predicting the devaluation. Latvian bank officials have said the national currency was strong and rumors were unfounded. Earlier this month, Nordea Markets suggested investors protect themselves against the risk of a devaluation of the Estonian currency as soon as possible. (m&c.com)