Romania redenominates its currency

Friday, July 1, 2005

The new 100 leu banknote, which replaces the old 1,000,000 lei banknote
The old 1,000,000 lei banknote

Today, Romania introduces its new redenominated currency, the new leu (code: RON), which is valued at 10,000 old lei (code: ROL). The process, which is known as redenomination, started in March 2005 when Romania started dual-currency display and all prices had to be displayed in both the old leu and the new leu. Starting from today, the first notes and coins of the new leu will become legal tender, and the new leu will become the official currency of Romania.

The redenomination (or conversion from the old to the new leu) is simple — 10,000 old lei are replaced by 1 new leu. One US dollar will buy 2.98 new lei, while one euro will buy 3.6 new lei. After the similar redenomination by Turkey the old leu had been the world's least valued currency unit, with the US dollar buying 29,891 lei and the euro buying 36,050 lei (on 30 June 2005). With the introduction of the new leu, Romania's currency will be among the most highly-valued in the region.

The new leu notes and coins, introduced into circulation today, will circulate alongside the old lei until 31 December 2006, when the dual-currency period ends and all of the old lei are expected to be withdrawn. However, old lei can be exchanged at banks indefinitely.

The new notes come into denominations of 1, 5, 10, 50, 100 and 500 new lei. The largest note of the old leu was 1,000,000 lei, or 100 new lei. The largest note of the new leu is worth 500 new lei, or approximately US$167 and €139. New leu notes will also have the same dimensions as euro notes of similar value. Additionally, they will use the same colours and design as their corresponding old leu equivalent (for example, the 100 lei note will look similar to the 1,000,000 old lei note).

All notes will be printed on polymer materials. Romania was the first country in Europe to introduce polymer notes, in 1999.

Redenomination represents the symbolic end to transition

The governor of the National Bank of Romania, Mugur Isărescu, said that the redenomination of the leu marks the symbolic end of Romania's economic transition from a planned economy under Communism, which was overthrown in 1989, to a free market economy.

The reason for redenomination was mainly the fact that the leu had become severely devalued, especially in the 1990s, due to high inflation rates. From 2002 onwards, the leu stabilised, and has even appreciated against the euro and the US dollar in the past year. Hence, the new leu was introduced to simplify the national currency, and also as a symbol of Romania's increasing economic stability. It is also expected to help pave the way for the adoption of the euro by Romania, which is expected in 2012-2014, after Romania joins the European Union in 2007.

Concern for inflation

Although the introduction of the new leu is viewed as beneficial on the whole, since it will bring Romania's currency more in line with the value of important global currencies such as the euro and the US dollar, concerns have been raised that the new leu will fuel inflation. Some people are concerned that the new leu will result in the rounding-up of prices, similar to what happened when the euro was introduced in the Eurozone in 2002, and therefore fuel inflation.

However, a rise in prices is not thought to occur due to the dual-currency display. This ensures that all businesses continue to display prices in both the new leu and the old leu until the end of 2006, and hence they will not be able to raise prices as easily, for fear of becoming less competitive in the market.