New Foreign Currency Regulation

18 May 2005 (Invest Romania)

In accordance with the calendar for liberalization of capital transactions agreed with the European Union, the National Bank of Romania („NBR”) issued the Regulation no. 4/2005 on foreign currency regime (the “Regulation”). Entered into force on April 11, 2005, the enactment repeals the former regulation, setting up a simplified regime applicable to foreign exchange transactions performed by residents and non-residents on Romanian territory.

The main amendments of interest concern elimination of authorization requirement for opening and operating deposit accounts in domestic currency by non-residents as well as the possibility granted to residents to freely perform operations in either domestic or foreign currency.

To enforce the Regulation, NBR issued subsequent norms concerning: (i) operation of inter-bank currency market; (ii) performance of currency exchange transactions; (iii) authorization of foreign currency transactions; (iv) physical import and export of cash payment instruments and (v) protective measures that may be taken following liberalization of operations in deposit accounts in domestic currency.

Foreign currency regime applicable to residents. Generally, current and capital currency transactions may be freely performed between residents and non-residents, in both foreign and domestic currency, save for specific cases provided by the afore-mentioned NBR norms.

The new enactment provides that all transactions performed between residents, which are not subject to goods and services trade, may be freely performed in either domestic or foreign currency, upon the parties’ consent.

According to the new Regulation, residents may acquire, hold and use financial assets denominated in foreign currency, while the amounts in domestic currency and listed foreign currencies held by them may be freely converted through the currency market.

The NBR Norm no. 5/2005 concerning the authorization of foreign exchange transactions maintains the requirement pursuant to which current and deposit accounts in foreign currency opened by residents abroad with credit institutions and other assimilated institutions should be authorized by the NBR.

Foreign currency regime applicable to non-residents. According to the new enactment, non-residents may freely open and operate bank accounts in both foreign and domestic currency, without NBR authorization. Furthermore, non-residents may freely repatriate and transfer abroad financial assets held in Romania.

Non-residents may also acquire, hold and use any foreign and domestic currency denominated financial assets. The amounts in domestic currency and listed foreign currencies held by non-residents may be freely converted through the currency market.

Protective measures. Through above-mentioned enactments, NBR has reserved the possibility to intervene on the foreign currency market, in case extremely significant cash-flows over short periods of time exert strong pressure on the market and cause severe disturbances in the execution of monetary policy and of the exchange rate, generating significant variations of domestic liquidity.

According to NBR Norm no. 7/2005, the protective measures may mainly involve maintaining certain amounts in foreign currency into an account opened with NBR, over fixed periods of time or setting higher compulsory minimum reserves rates for deposits opened by residents and non-residents in domestic currency, as a result of capital inflows.

Other possible measures in this respect might be: the setting by NBR of a commission on inter-bank foreign currency market transactions related to capital inflows/outflows of residents/non-residents with a view to deposit/attract certain amounts denominated in domestic currency into/from deposits opened in Romania or imposing maturity restrictions over deposits in domestic currency opened by residents and non-residents, resulted from capital inflows.

In any case, such measures taken by NBR will be notified to the European Commission and will not exceed 6 months.



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