Romania Finance and Money

By | December 23, 2021

Finance. – The first budget of unified and enlarged Romania (1919-20) represents a major effort towards a return to financial normality. The war and the invasion first, then the purchase of new regions, with a different financial and monetary system as well as equally damaged and disorganized by the conflict, had however profoundly altered the private and public economy of the country that, despite the government being immediately resorting to remedial measures, only in 1922-23, at the cost of serious sacrifices, the state budget was able to reach effective balance (only apparently that of 1921-22 had closed in surplus). The remediation then proceeds rapidly; the tax reform of February 26, 1923 reorganizes and unifies direct taxes and establishes a progressive tax on global income, Agreements are concluded with creditor countries and debt amortization begins, war damages are repaired and at the same time new needs are met, improving public services, and the rapid increase in revenues allows to cope with the increase in expenses . For the improvement to be consolidated, however, it was necessary to stabilize the currency. The circulation, which amounted in 1918 to 2 and a half billion she was in fact already risen to 15 billion in 1922, although since then he had tried with high interest rates and other deflationary measures to curb the rise (the bad performance of the foreign trade balance, however, severely hampered this policy) had reached almost 21 billion in June 1926 and the leusi was progressively devalued until it was exchanged on the basis of the ratio of 1500 lei for 1 pound sterling (original parity 25 lei = 1 £.). Only when, due to the good harvest of cereals and the recovery in oil production (despite the fall in world prices for these commodities) the trade balance became favorable, the leu began to rise, and the average in fact reached in 1926 was considerably lower than the maximum reached (1068.50 lei = 1 £.). For Romania public policy, please check

Once inflation had definitively stopped and a policy of reducing expenditure was adopted, the balance of the budget maintained and the balance of payments improved, the rate of the leu continued to rise during 1927 and 1928, so much so that on 7 February 1929, with the aid from an international loan of 101 million dollars, it could be stabilized at the ratio of 813.6 per £. However, shortly afterwards the global crisis began to have repercussions also on the situation in Romania and in order to face the contraction in revenues it was necessary to resort to fiscal tightening and reductions in various expenditure items, especially since large allocations were required for the defense of the country. Nor was it possible to avoid the reappearance of the deficit in the state budget. A second foreign loan (of 42 million dollars), guaranteed as the previous one by the autonomous monopoly fund (created with law n. 360 of 7 February 1929) was issued in 1931 and intended to improve the fate of agriculture. However, the scarcity of capital, characteristic of the financial phase of the crisis, made the situation more and more serious and with difficulty the bank managed to avoid restrictions on exchange rates and to maintain the stability of the currency during 1931. In May 1932 it was necessary to introduce control over currencies and suspend the convertibility of the notes into gold (which had been restored by the stabilization law of 1929 for the amounts of 100,000 lei upward). In November of the same year a trade quota regime was then adopted in the general situation which began to occur at the beginning of 1934; this improvement was accompanied by an effective review of the various economic positions and a progressive adaptation to the new situation created by the crisis. The state budget, however, has not yet been affected.

Balance the advertisement. – The revenues of the Romanian budget are mainly based on indirect taxes, and therefore on state monopolies (due to their constitution as an autonomous body – which took place, as already mentioned, ncl 1929 – their income has considerably decreased since 1930), direct taxes and stamp duties and registration fees. The largest expenditure items are those for national defense and public debt. The income and expenses relating to railways and pensions, from 1926, and those relating to postal, telegraphic and telephone services, from 1927, do not appear in the state budget, having been set up for these managements, as later for the monopolies, of autonomous companies with separate financial statements. Given the urgent need to complete the army endowment, in November 1934, through a special loan and new tax increases, a special fund for national defense was set up. We also recall that, starting from 1932, the liquidation of the residues was carried out through the establishment of an extraordinary budget.

The public debt of Romania as of April 1, 1935 amounted to 99.4 billion lei, of which 80.4 billion of foreign debt and 19 of internal debt. To this must be added 32.6 billion of war debt (mostly contracted with France and England), although the payment of the relative annuities has been suspended since 1930.

Money and credit. – The monetary unit is the leu (of 100 bani) originally equivalent to the French franc and the pre-war Italian lira, whose value, on 7 February 1929, was established at 10 milligrams of gold at 900/1000 fine. The circulation is made up of banknotes (issued by the National Bank of Romania, which has the monopoly of the issue and the obligation to keep a reserve equal to 35% of the total sight commitments) and divisional coins from 1 to 20 lei. (100 lei silver coins were also issued in 1932in place of tickets of the same denomination). As of March 23, 1935, there were 21.6 milliards of notes in circulation and the ratio of the gold reserve (at the same date consisting of 8.8 milliards at home and 1.6 abroad) to the total of sight commitments was 35.32%.

The main credit institutions are – in addition to the National Bank of Romania, founded in 1880 and having the character of a state bank – the Banca Românească (1910), the Banca de Credit Român (1904), the Banca Comer-cială Română (1906), the Banca Comercială Italiană şi Română (1920), and the Bank of Roumania Ltd. (1903) with English capital.

Romania Finance and Money