NBR ponders denomination, to make the ROL stronger

The National Bank of Romania (NBR) has started preparations to strike some zeros off the Romanian bills, an operation called denomination.

“NBR is preparing a measure to strike off some zeros. The technicians of the bank are currently discussing this issue. It is not debated yet by NBR’s Board of Directors,” Adrian Vasilescu, NBR governor’s advisor, told Ziarul Financiar.

He added that no deadline had been set for this measure to be enforced. The operation will however need to be discussed and sanctioned politically, following the debates and the possible endorsement by the NBR’s Board of Directors.

A national referendum is also being considered, as it has previously happened in other countries (i.e. Italy, which did not approve the measure, although the political decision was in favour of it).

NBR wants to induce the denomination term (which means striking off a certain amount of zeros) in the public opinion, as it must not be mistaken for others with havoc wreaking meanings.

“NBR would like the denomination term to be of general use, instead of others such as monetary reform or stabilisation, which have a dreadful connotation in the Romanian people’s mind. We have had confiscatory stabilisation twice in the past, when the money was changed and people lost a great deal of their savings. This is why we are stressing on the denomination term, which only means striking off some zeros, maybe four,” Vasilescu says.

The moment for performing such an operation cannot be separated from two things: “the decision cannot possibly be made too early before the moment of a relative stabilisation of prices, that is when the annual inflationary rate reaches 10 or 20%. But it cannot possibly be made too late, because, technically speaking, it takes a while to exchange ever single coin or bill in circulation,” Vasilescu mentioned.

Back in 1990, Romania’s most valuable bill was the 100 lei one. At the moment, Romania’s most valuable bill is the 500,000 one. The purchasing power has dropped fifty percent in between.

The bankers agree to the idea. They say they already find it hard to deal with too high figures. This operation was performed in Poland, several years back. The governor of the Polish central bank, Leszcek Balcerovicz, several weeks ago suggested the National Bank of Romania should enforce a similar measure.

Such a method has psychological effects that help curbing inflation and stabilising the exchange rate. However, where Russia and Yugoslavia are concerned, the effects were somewhat less powerful than expected.