Last night at midnight we turned back the clock. The slashing of four zeroes from the ROL is nothing more than a cosmetic move, though it will have a practical effect - the strengthening of confidence in the domestic currency.
Ziarul Financiar invited the President Traian Basescu, Premier Calin Popescu-Tariceanu and National Bank Governor Mugur Isarescu to the event marking the shift to the new monetary denomination as a milestone in Romania''s economic development. They were asked to withdraw the first hard ROL (called RON) from a BRD cash dispenser in Piata Victoriei.
Of course, productivity will not rise instantly as of today, and the same goes for average life expectancy and average salaries; nobody''s life will change. In fact things will be more complicated for a while, especially for, say, cash register operators in supermarkets - however, if confidence in the "weight of the ROL" is boosted, then the effects for the future will be beneficial.
Besides language, the flag, national soccer team and the duty to pay taxes to the state, the people of any given country also share a common currency. The fact that half of all banking deposits are now in foreign currency, that the price of housing, cars and telephone services are all calculated in euros or dollars shows that this confidence is very low among most Romanians.
This is happening despite the fact that the ROL has stopped depreciating over the last couple of years and interest rates on deposits in ROL have become much more profitable than for foreign currency. Not to mention the fact that setting prices in euros or dollars has become a disadvantage for merchants precisely for this reason.
Reducing the number of zeroes from the currency is expected to cause inflation to fall, as has happened in many other countries that underwent a similar process. As a result of the reduced purchasing power, the ROL from 1989 now equals 2,600 old ROL from today (or, conversely, today''s ROL is only 1/2600th of the value of the ROL in 1989). Thinking in new money terms, this year''s RON is worth nearly 4 ROL from 1989. In other words, today''s new ROL is stronger than in 1989.
Compared with the dollar, today''s ROL is 2,000 times weaker than it was fifteen years ago. The dollar was rated at 15 ROL in 1989, but is now rated at 30,000 ROL (3 RON). The comparison is far from perfect, though, because there was no forex market fifteen years ago, and the official exchange rate was in effect irrelevant.
The ROL has lived through the most troubled moments of its existence in these last 15 years. The hardest moment was in the beginning when price deregulation sent inflation soaring to 300-400% a year. A period of stabilisation followed, but also of stagnation in terms of reform. This was followed by another period of deregulation, only for inflation to fall to below 10% and appreciation against foreign currencies to begin.
The zero-slashing move does not mean the end of transition, nor will achieving the 1989 level of Gross Domestic Product per capita or joining the European Union.
The large-scale deregulation of the world trade in both services and commodities is making competition increasingly fierce, gradually rendering transition an individual, rather than collective issue.
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