Cablegate: Romania's Redenominated Currency Premiers July

This record is a partial extract of the original cable. The full text of the original cable is not available.

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
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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