This attractiveness may no longer be objectively related to low unit labour cost or disproportionate tax facilities which would not comply with EU norms. Therefore, an investor-friendly environment should be the result of a different set of characteristics such as increased flexibility in the fiscal regime and in the labour market. Thus, the NBR’s primary objective to ensure and maintain price stability is closely linked to the policy mix pursued by the Romanian authorities. Another nominal objective which is essential for joining the euro area is exchange rate stability. In recent years, the improved performance of the Romanian economy enabled the significant alleviation of exchange rate fluctuation as compared with the situation in the last decade. In fact, the foreign exchange regime adopted by the Romanian authorities, namely a flexible exchange rate requiring far lesser interventions in the forex market by the central bank, bolstered the national economy. Even the over-appreciation episode in early 2007, generated by massive capital inflows following Romania’s accession to the EU, was corrected via autonomous forex market movements. We may state that, at present, there are no significant pressure-inducing factors in relation to the exchange rate in terms of  2  BIS Review 162/2008  appreciation or depreciation, despite the temporary two way movements caused by global financial market turmoil.
The results are visible, even though – for statistical reasons – the NBR calculations appear to give a different picture. In order to avoid possible confusions, allow me to present several technical details. The data released indicate a faster dynamics of demand deposits compared to time deposits, apparently hinting at the emergence of additional inflationary pressures. We are dealing in fact with two developments related to statistical evidence rather than real economic substance. One such development is the transfer, since 2007, of forex-denominated demand deposits from “quasi-money”, which is part of M2, into M1 (narrow money). This is merely a matter of compliance with EU definitions. The economic substance has not changed: the Romanians do not resort to foreign currency accounts for current transactions, but rather as a means of saving. Another development weighs heavier and it is also manifest in the case of forex-denominated current accounts, while being extremely significant from a quantitative perspective for RON-  BIS Review 162/2008  3  denominated ones. Since deposit accounts are subject to income tax, while current accounts are not, banks have developed a way to attract customers: current accounts whose yields are higher than deposit rates. This led to massive portfolio shifts to the detriment of traditional deposits, as households placed their savings in the so-called current accounts, or even card accounts, which are highly remunerated conditional upon maintaining a balance higher than a certain floor.