Stringent macroeconomic problem: Where should the exchange rate settle?

The international struggle to protect economies and bolster exports by depreciating currencies, which intensified over the last few weeks, brings to the forefront the issue of the exchange rate, in Romania, as well.

Increasingly more businesspeople and analysts are saying the economy is suffocating because the national currency (RON) is not depreciating, and are wondering how much longer we can afford to keep an exchange rate of a little over 4 RON per euro, close to the 2004 levels, despite the fact that the accumulated inflation amounts to 42%.
Over the last two years, the NBR (National Bank of Romania) has kept a close eye on the forex market and spent over 4 billion euros (according to ING Bank estimates made last autumn) in order to defend the RON. Exchange rate stability was the main reason for taking out the foreign loan from the International Monetary Fund and the European Union, worth nearly 20 billion euros, which fuelled the NBR’s foreign exchange reserves.
The National Bank calculated an exchange rate of 4.2672 RON per euro last Friday, only 3.3% above the 2004 maximum of 4.12 RON. Had the exchange rate been adjusted for inflation, the euro should have passed 5 RON.
The world’s two giants – the United States of America and China – are writing a new episode in the war of depreciating their own currencies. Whilst China continues to buy dollars massively in order to counter a yuan appreciation, despite the huge trade surplus, in the US the central bank (Fed) is discussing plans for a new round of “quantitative easing” measures, which basically amounts to printing currency. Fed’s recent announcement was reflected in a depreciation of the dollar by 7% against the euro in September alone.