The RON was internationally acknowledged in 2006 as the “king of currencies,” as it witnessed the most substantial appreciation against major world currencies, the US Dollar in particular. The RON went up by approx. one-fifth against the USD. In other words, for RON owners, the USD value of goods (e.g. of American commodities) dropped by one-fifth. Therefore, more imports. On the contrary, costs of deliveries denominated in USD (e.g. to the USA) by Romanian exporters went up by one-fifth. For the prospective American tourists, the bill also went up by one-fifth, while American investors were bound to pay, for the same investment in Romania, approx. one-fifth more in USD. Therefore, fewer exports, fewer tourists and fewer foreign investors for Romania.
Speculators on the other hand were happy. They are well aware that the Romanian market is frail, therefore sensitive even to low capital movements. In other words, if speculators decide to put money in the Romanian markets, they know they will easily modify the demand and the supply, and the RON moves up. The more investments on the local capital market, the faster the RON appreciation. Every now and then, speculators mark their profits, i.e. cash their profits from the RON appreciation. This is when the RON goes down, speculators withdraw with their pockets filled, and local players, particularly business operators who have no where to go, stand to lose.
The year 2006 saw the entrance of high-level speculators, the so-called institutional investors, starting from Austrian banks, international investment banks and the World Bank itself. They did what relevant Romanian authorities had refrained from doing: they launched bond issues in RON. Knowing the rules of the game, international speculators count on the RON appreciation and buy, in order to get profits later on. No one can tell for sure how long this is going to last. It will last until the whole affair goes off and Romanian authorities get tricked, as the RON, yesterday’s “king,” will collapse.
Romanian authorities do have a reason for not rushing into launching RON issues, so as not to add fuel to the fire. They know what speculative games and the associated appreciation of the national currency can lead to. All the recessions in past decades, regardless of their location, were preceded by ungrounded appreciation of the respective national currencies, generated by speculations allowed for through capital account deregulation.
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