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Economy in Brief

Romania to Redenominate the Leu in July:  1 New Leu = 1,000 Old Leu 
by Louise Curley April 18, 2005

On Wednesday, April 20, the central bank of Romania will issue new banknotes and coins of the new leu, which will become the legal currency as of July 1. One new leu is equal to 1,000 old lei.

Romania is one of a number of countries that have redenominated there currencies after they have tamed the inflation that had eroded the value of their currencies. Romania experienced three bouts of hyper inflation in the nineties--the first, producing an inflation rate as measured by the year-to-year percent increase in the consumer price index of 350% reached in March 1992, the second with a monthly peak of 309.7% in December 1993 and the third, with a monthly peak of 177.4% in June , 1997. The high rates of inflation led to continuing declines in the currency. The attached chart shows inflation, measured by the year-to-year percent increase in the consumer price index and the monthly exchange rate, Leu/US$, with the latter plotted on an inverted scale. Inflation in Romania has been declining slowly since early 2000 and has now reached 8.6% in March of this year.

A decline in the leu/US$ means that the dollar has depreciated against the leu or that the leu has appreciated against the dollar. (In the Haver data bases when the exchange rate is listed in terms of the foreign currency to the dollar, the percentage changes calculated are the percentage changes in the dollar relative to the foreign currency. In order to calculate the percent change in the foreign currency relative to the dollar, one takes the reciprocal of (1+the change in the dollar) and subtracts 1. For example the change in the leu/US$ from March 2004 to March 2005 was -14.99%, meaning that the dollar depreciated 14.99% against the leu or that the leu appreciated {(1/85.01)-1} or 17.6%.

Romania Mar 05 Feb 05 Mar 04 M/M Y/Y  2004    2003   2002
Consumer Price Index (%Y/Y) 8.63 8.92 13.09 -0.19 -4.46 11.86 15.36 22.51
Lei/US$ (EOP) 28429 27473 33440 3.48 -14.99 -1082 -2.70 6.02
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