The "Heavy" ROL and "The New Romania" (I)

After nearly three years of "hard persuasive work," studies, analyses and debates, The National Bank has finally managed to convice The Ministry of Finance of the necessity to "denominate the ROL," that is, to replace the existing low-purchasing power currency with a new high-purchasing power currency. The Ministry agreed, The Government agreed and so Parliament is expected this spring to pass a bill, drafted by The National Bank jointly with The Ministry of Finance, under which a new ROL will be issued, equal to either 1,000 or 10,000 existing ROL. This will mark the accomplishment of a project The National Bank has never given up on, but has so far failed to finalize because of unfavorable circumstances.

The main condition that could not be met, until now, was to make and keep the national currency stable, considering that the existing weak ROL is the result of a long trail of governmental policies, endorsed by The National Bank, which have gradually devaluated it.

Two factors have constantly weakened the ROL. First of all, the continuous decay of the Romanian economy. So long as the real economy kept going from bad to worse, with companies producing increasingly worse products, the only thing to do in order to avoid an abrupt shutdown of money-losing enterprises was to increase prices. This process is continuing as we speak, with its last "citadels' being the energy production sector and the other utilities, whose prices will continue to go up in the future, just as they have so far.

On the other hand, in order to prevent uncontrolled price increases to brutally and mercilessly devastate most of the population, all governments that have been in power since the fall of communism were very careful to increase salaries and pensions whenever they decided to increase prices. Nevertheless, salary and pension increases were always smaller than price increases, the result being that an overwhelming number of Romanians have been living a continuously decaying life since 1990. Still, salary and pension raises were granted, but the problem was that employees and pensioners received more and more money of less and less value. The long process of adjusting the purchasing power of the average wage to the poor quality of the work done for that wage involved "a safety valve:' the value of the national currency, which decreased more than 100 times in less than 15 years. This is how Romania has come to a point where even the poorest of its people have millions, but can barely buy anything with it.

The second factor that pushed the ROL down was the world economy. While the Romanian economy was going from bad to worse, the world economy - of which the Romanian economy is a part, although we sometimes wish it was not - was getting better and better. On the international market, the low-quality Romanian-made products, that is, the fruit of many hands, clashed with the products of the developed economies, that is, the products made by many advanced machines at high quality standards. The obvious consequence is that Romanian producers had to severely lower their prices in order to sell some of their merchandise. Considering that prices on international markets are denominated in hard currency, the result of this clash was a serious and very quick devaluation of the ROL - which paid the low-quality labor of Romanian workers - against the hard currencies - which paid the high-quality labor of the Western workers. The sad result was that a Western worker, with an average wage of 25,000 USD per year came to produce 20 times as much merchandise as a Romanian worker and so the ROL-USD exchange rate had to be adjusted to this productivity ratio. The higher the ROL-denominated wage paid to the Romanian worker - who, let us not forget, was producing less and less merchandise at lower and lower quality standards - the smaller the ROL was against the USD. This is how one dollar came to equal 30,000 ROL (this is the key figure because, shortly before the fall of communism, one dollar was worth 30 ROL, that is, 1000 times less than it is now!).

Nonetheless, there was another factor that pushed the ROL down and the USD up at the same time. This factor, which neither governments nor international financial institutions ever consider, was the transition to a market economy and the radical changes undergone by the Romanian society.