Romania launches new leu in battle against inflation

BUCHAREST – The ranks of Romanian millionaires will thin markedly from Friday as the European Union candidate slashes four zeroes off its leu currency to simplify transactions and mark five years of slowing inflation. The Balkan country of 22 million where the average monthly salary is 7.4 million lei ($247.5) decided to redenominate its currency, which trades at around 36,000 to the euro, from July. «I am very glad to part with this creation of a very difficult period for Romania,» central bank governor Mugur Isarescu told a recent banking seminar. «It’s not easy to be the governor in a country where the currency has so many zeroes.» Emerging from communism in 1989 after a bloody revolution which toppled Stalinist dictator Nicolae Ceausescu, Romania battled stubborn inflation for years and saw its currency dwindling from 21.5 to the dollar in 1990 to around 29,700 now. Year-on-year inflation fell from 300 percent in 1993 to 9.3 percent at the end of last year and the central bank says the measure might contribute to efforts to curb it toward levels of 2-3 percent by 2007 or 2008. «Our message that inflation would be toward 2-3 percent in 2007 or 2008 will be stronger,» Isarescu said. «It (the leu) had no credibility with so many zeroes in its tail.» Romania plans to cut inflation to up to 7.5 percent this year and to up to 6.5 percent in 2006. Analysts and central bank officials said the fact that prices have been posted in both currencies starting with March meant the introduction of the new currency would not fuel inflation, which was 10 percent year-on-year last month. «The experience of other countries shows that the impact on inflation was less than 0.2-0.3 percent for the whole year when they redenominated their currency,» said economist Liviu Voinea, from the Group of Applied Economics independent think tank. He said costs for printing the currency would decrease and that accounting and statistics transactions would be much easier in the country which had a gross domestic product of 497.25 trillion lei ($16.71 billion) in the first quarter this year. The move would also prepare Romania to join the eurozone in 2012 or 2014 since the new notes, which will keep the same design to be easily recognized, will be the same size as euro notes. Ordinary Romanians are split on the move, with many saying redenominating the currency brings more headaches than benefits, and that it shows that they are poorer than in communist times. «Old people will be cheated of their change in shops,» said 61-year-old pensioner Maria Radu. «My pension will be 350 lei. When I got my first job under the communists I earned 700 lei.» But others say the new currency, besides making it easier to operate cash, would also bring new marketing opportunities. «It will help me sell more. It’s better to say a bunch of carrots costs 1 leu, than 10,000 lei,» said 27-year-old farmer Marinela Niculaita, selling vegetables in a Bucharest market.