Romania's Exchange Rate Policy towards its European Monetary Union
Membership - Prospects and Challenges
Published in Romanian Journal of Economic Forecasting, 2008, volume 9
issue 1, 175-181
This paper has a focus in considering the implications of the European integration for
the present and future exchange rate arrangements between the European Union and
Romania as an emerging country.
The objective of this paper is to examine rather medium-term outlook for exchange rate arrangement involving Romania in its European membership process and the EU
in the new single currency environment.
The national currency has a managed floating exchange rate regime against the single European currency, compatible with the inflation targeting policy
currently promoted in Romania. Romania will also have to register a quite problematic
coexistence of inflation targeting with an exchange rate stability after joining the
Exchange Rate Mechanism II.
An exchange rate arrangement involving the national currency and the single European currency must be quite flexible to the economic conditions of Romanian
economy and to the policy commitments of the authorities. The arrangement will also
have to be compatible with the price stability objective of the European monetary
policy and will need to strengthen the national authorities’ capacity of achieving the
structural adjustment. The flexibility within the ERM II will allow all of these ends to be
Joining the ERM II and thus registering a formal link to the single European currency,
the Romanian economy will enjoy a greater credibility in the context of an anchor for
The ERM II has also a few disadvantages. A hard pegging with the euro inside the
ERM II wouldn’t be appropriate given the incapacity of the emerging market
system of determining an equilibrium level for the exchange rate of the national currency against
A real exchange rate appreciation could also generate tensions as a result of price
tendency and differences in productivity growth between the national economy and
the Euro Area countries.
exchange rate policy, EMU