05BUCHAREST1456 / 2005-06-29 10:52:00
Embassy Bucharest
                UNCLAS SECTION 01 OF 02 BUCHAREST 001456 
 
SIPDIS 
 
STATE FOR EUR/NCE - WSILKWORTH, EB/IFD 
STATE PASS USTR 
USTR FOR LERRION 
TREASURY FOR STUART 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEEB/BURGESS/KIMBALL 
STATE PASS USAID 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EIND, EFIN, RO, Economic Assessment, Financial program 
SUBJECT: ROMANIA'S REDENOMINATED CURRENCY PREMIERS JULY 
FIRST 
 
SUMMARY 
------- 
1.  Romania officially and hopefully marks the end of its 
period of high inflation by introducing its redenominated 
currency, the "heavy" Leu, on July 1, 2005.  Redenomination 
will slash four zeros off the existing currency, making one 
leu worth approximately 0.30 cents (U.S.).  Although the 
upcoming move has provoked little anxiety among the public, 
press and banking communities, Embassy experience to date 
raises some concern about the switch. END SUMMARY 
 
Romania's Heavier Lion Charges Ahead 
------------------------------------ 
2. The GOR decided in early 2003 to redenominate and 
reconfigure the Leu (which means "lion" in Romanian) to make 
it approximate the value and appearance of the Euro (in 
anticipation of Romania's eventual inclusion in the 
Eurozone).  In addition, the new Leu will be listed on 
currency markets as the "RON" (which means "Romanian New") 
to distinguish it from the "ROL" (which means "Romanian 
Leu").  And for the first time in many years, fractional 
coinage, the "Ban" (100 Bani equal one RON) will also 
circulate for making change. 
 
3. In practical terms, the old currency's face value will be 
divided by 10,000.  For example, a one million ROL note, 
currently the largest bill (worth approximately $30), will 
be converted into 100 RON, which will also be smaller in 
format, more like the size of the Euro notes.  One Euro 
equals about 3.6 RON and one dollar equals about 3.0 RON at 
the current rate of exchange. 
 
4. Officially, the new currency debuts July 1, but the GOR 
plans an extended phase-in of the RON and will circulate it 
in parallel with the ROL for 18 months.  This period will 
permit customers to acquaint themselves with the new notes, 
allowing businesses such as vending machine manufacturers to 
make adjustments for the new coins and notes.  The GOR has 
advised all commercial banks to cease public operations on 
Thursday and Friday, June 30 and July 1, although a few 
banks will remain open for limited transactions.  Credit 
cards will be unusable Thursday, June 30, and most ATMs will 
not function until Saturday, July 2. Ostensibly, the RON 
will lower transaction and production costs for both 
commercial banks and Romania's Central Bank and will also 
allow banks to use cheaper standardized software. 
 
5. The Romanian Central Bank delivered the RON to banks by 
June 15; retailers are scheduled to receive the new currency 
no later than July 1.  Bankers are recommending that clients 
make scheduled end-of-month payments before June 29, to 
avoid the potentially chaotic period between June 30 and 
July 4.  Banks will likely not begin dispersing the RON 
until Monday, July 4, when bank branches reopen for 
business. 
 
Public Education Campaign 
------------------------- 
6.  The Central Bank created a public education campaign 
including seminars, advertisements and distribution of 
materials that describe the changes.  Additionally, since 
March 2005, all businesses have been required to post all 
prices in both old and new Leu.  The GOR has distributed 
more than 1,720,000 pamphlets edited in Romanian, English 
and Hungarian describing the design and safety features of 
the new Leu, as well as 600,000 posters and even 5,000 
pamphlets in the Braille alphabet.  The Central Bank has 
also organized more than 100 technical meetings and 
seminars, with commercial banks, private companies and local 
authorities to help spread the word.  The GOR gave special 
attention to those working in the financial world by 
distributing 10,000 technical booklets geared towards 
commercial bank employees. 
 
Comment 
------- 
7.  The Central Bank has created a comprehensive plan for 
the RON roll-out, based partially on its previous experience 
replacing paper currency with plastic notes.  Both the RON 
and ROL display the same color and design for equivalent 
values, making it easier for consumers to adapt to the 
change.  However, it remains to be seen whether the 
redenomination will cause disruption in the marketplace, due 
to the extensive software alterations required by both local 
and international banking systems.  In May, US Embassy 
Bucharest discovered that one international ATM machine 
clearinghouse had incorrectly pre-set its systems to account 
for the heavy Leu, instead of the current Leu, hindering 
withdrawals from certain U.S. banks for almost a week. 
Another concern lies with the reaction of the elderly and 
rural population, whom many observers credit as being 
distrustful of any new change of this magnitude - 
particularly after the economic battering many experienced 
in the past 15 years. 
 
Delare 

            
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