The ROL stands new chances of losing its ever-increasing tail of zeros. After an over one-year break, the National Bank (NBR) is bringing up again the need to denominate the domestic currency, given that the ROL will seemingly not be replaced by the euro too soon (by 2010-2013). The subject is topical again, after Finance minister Mihai Tanasescu two weeks ago said he was in favour of having the denomination in 2005, which measure was to be taken by the next Government team. In that case, preparations should begin as soon as possible, i.e. in the first half of 2004. Tanasescu added he had consulted with the NBR Governor Mugur Isarescu first.
The Cabinet last year declined the National Bank's proposition to strike three or maybe four zeros off the ROL's tail, leaving the step for its successors to take.
The postponement of the denomination is putting the central bank in the position of having to release a higher value bill, given that the nominal depreciation of the ROL has pushed the 500,000 ROL bill down to the equivalent of no more than 12 euros. The highest-denomination bill should normally equal at least 40 or 50 euros, yet the central bank has postponed issuing the one million ROL bill thus far.
The National Bank may not decide for the denomination of the ROL by itself, as it takes a law enacted by Parliament.
"If a political decision is made for this measure, we should already have a law debated by Parliament in 2004 so that the central bank could begin the necessary technical preparations," says Adrian Vasilescu, advisor to the NBR Governor.
Actually, NBR's only worry is the time it needs (about 12 months) for the technical execution of the "political order", which also entails significant costs related to the replacement of all the issues of bills and coins currently in circulation.
To a certain extent, the central bank felt encouraged to bring the denomination issue up again by the recent favourable statements of the Finance minister. "I do not think it was a mere personal opinion. He is probably speaking on behalf of his team," Vasilescu says.
NBR came to the conclusion it needs to strike some zeros off the ROL's tail two years ago, following the experience of another 13 countries in the region, which did so in the mid nineties. "If we do not do this, the shift to the euro will have us at a disadvantage. We might even end up realising we cannot buy anything with the money we have been saving up for years, which would be a really hard to overlook psychological factor," the NBR Governor advisor says.
He explained the experience of the countries that had already gone through the denomination of their domestic currencies showed this step was sure to help inflation go down fast. International Monetary Fund experts, however, do not agree, feeling that cutting zeroes is just a technical procedure, unable to help disinflation out for as long as the necessary macroeconomic conditions are not provided.
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