In the economy, there are certain pairs, elements that always make you wonder which one is more important. For example, access to credit versus encouraging savings. Or price stability versus financial stability.

Then we have capital account liberalization – we allow capital to flow in – against investment from our own funds, from our own resources. Raise taxes or stay where they are now? I will return to these pairs later.

It is important that the considerations regarding the conduct of monetary policy are dynamic.

In 1998, I was almost never hired at the Ministry of Finance. I left the Ministry of Finance in 2002, and at that time Romania was going through a rather unpleasant crisis; there was a discussion about Romania’s default, about the inability to repay its debts, which ultimately did not happen. The other pair is nominal convergence versus real convergence, and ultimately both versus the ability to play an active role as a member of what is called Economic and Monetary Union.

The population’s propensity to have euros in their account is not as high as the “propensity” to have euros in their pockets

It seemed to me that one of the essential sections was the one dealing with the introduction of a single currency. That’s the goal that we have, and that’s the goal that everyone probably expects us to have. This, although it has recently been quite clearly observed that the propensity to have euros in one’s account is not as great at the population level as the propensity, taken in quotation marks, to have euros in one’s pocket. There is a big difference between the two options.

At one point during the 2016-2018 period, Romania still largely met the assessment criteria. However, despite this, the process of introducing a single currency did not accelerate. And here, again, questions may arise: was it a good choice, or was it a bad choice…?. It’s hard to say, but I don’t think rushing is an advantage.

I think there was no one in a position to make the perfect choice, absolutely no one. After that, we moved into the area of ​​external and internal imbalances.

In the period 2014-2016, there was a window of opportunity in Romania. And yet, why did he do nothing to accelerate or accept the currency?

Although we were prepared on the surface, we were not prepared in depth. And here I would mention structural reforms, they have always been a strong nut for those who made decisions. And that’s because they had a less pleasant feature: any progress you might have made implementing them could not be leveraged in the political cycle. And the one who started them could not make money from the result.

Therefore, everyone tried to avoid these reforms because they did not bring the desired political capital when the re-elections were due.

Quarterly, we grew 7%, 8%, 9% and 10% if I’m not mistaken. Another interesting couple growth versus developmentconcepts that we cannot confuse.

Romania, and not alone, had growth without development.

Romania found itself in a situation where over time (with the exception of 2010, when Mr. Governor coordinated the work of the Government from the position of Prime Minister – and the main engine of growth was net exports) it grew almost exclusively at the expense of import consumption, financing other savings. I mean, the fact that we have 7% of GDP means that GDP is growing, but it does not mean that we are developing. Romania, and not alone, had growth without development.

If we look, for example, at the financial markets, which are shallow, we cannot conclude that Romania is very developed.

If we look at the infrastructure sector, yes, it is better now, but we cannot conclude that it has developed. For example, historical provinces are still not connected to each other by road infrastructure. Romania is still not connected to Europe by road and railway infrastructure. Constanta is still underutilized as a port because we have no connection to Europe. Thus, despite the largest recorded progress (9 percentage points, in the period 2013-2017, compared to Bulgaria with only 3) in terms of GDP per capita compared to the European average, Romania remained in the penultimate place in the platoon.

Another pair is optimal/profitable. Is Romania ready to switch to the euro? Probably so. But is it on time?

In 1995-1996, the question of choosing a monetary policy regime arose. There is a debate about the regime of free floating, controlled floating or currency board, the latter is actually a kind of automaton. Bulgaria and the Baltic countries elected a currency board.

The explanation I found is that Bulgaria chose to move to a monetary board aimed at discipline through demand. So it has recorded budget surplus, external surplus and so on, but it has not been able to develop much if we take GDP per capita as an expression of development and not growth.

Romania did not choose a currency board, it chose a regime of controlled floating and moved on. Therefore, I think that here too the choice between the two options was not necessarily the best. But it was the best possible at the time, realizing that once the hard regime was established, the exchange rate no longer helped.

The sensitive year is 2024 and the sensitivity is that it is a full election year and the effects/consequences will be seen from 2023 to 2025.

In 2018, on the occasion of the 10th anniversary of AAFBR, we presented a possible calendar for the adoption of the euro here at the Center of the BNR. The year of enactment was 2028. The sensitive year is 2024 and the sensitivity is that this is a full election year and the effects/consequences will be seen from 2023 to 2025. Then I thought that Romania could enter the ERM2 Mechanism in 2025.

Meanwhile, the desire to adopt the euro has fallen compared to what it was a few years ago. On the other hand, we have several examples around: Hungary, Poland, Italy. What is happening there? All 3 states are economically ahead of us. And where does the question mark come from?

In all 3 states there was a wave of mistrust, critical opinion, controversy over certain demands made at the center. The reasons are not necessarily of an economic nature. Hungary is unhappy that it has been punished for the stance it has taken in recent years and will not receive European funds, which it says it does not want. Poland, out of solidarity, said that it is not possible to treat a member state like this. Italy referred (new prime minister, leader of the extreme right) to the identity of the family and the person, being a little against new approaches to the family, the person, etc. Also, the new Italian Prime Minister had a presentation where she was very passionate about these things. I understand that there is a problem with either communication or understanding and it is affecting the unit.

The conclusion is that in the case of none of the 5 prerequisites of sustainable development, we can put a single exclamation mark that would make us believe that we have succeeded here. We have not made structural reforms or not enough. We attracted European funds only to a small extent. External competitiveness exists and does not exist. A combination of strategies is another pair: fiscal policy versus monetary policy.

Another question raised by reputable economists is: what is more important; Price stability or financial stability? Which should be abandoned?

Price stability is objective, it has a unit of measurement: the level of inflation in a certain interval. As Jaime Caruana (2005) put it, financial stability does not have a clear dimension. In addition, financial stability is not a goal, but our asset, as Mr. Guvenator noted more than once. And which one should we give up? What is more important?

After all, the development of the financial system leads to the development of the economy, and not vice versa. Related to this topic is the notable dilemma of the former head of the Czech Central Bank, Josef Tosovsky (Tosovsky’s Dilemma) regarding the “sufficient” interest rate.

What is a sufficient level? High enough to moderate inflation, yet low enough not to

lead to an excessive appreciation of the exchange rate.

N. Ed: The opinion of Mr. Libokor is personal, without involving the institutions with which he may be connected. These words were said at the presentation of the book of Governor Mugur Iserescu: “Central banks and monetary policy calibration”