In line with the European treaty establishing the principle of free movement of capital (the Single European Act), the National Bank of Romania (the NBR) recently repealed the last of its provisions impeding this free movement. The enactment (NBR Regulation 4/2006) sets out the new status of the foreign exchange market.
The foreign exchange market was totally liberalized, according to the agreed progressive schedule, on September 1 2006. All NBR authorization requirements regarding foreign exchange capital operations are no longer necessary.
These authorizations were previously required for operations involving financial instruments usually traded on the currency market (except those representing foreign public debts), that is: (i) the acceptance of Romanian financial instruments on a foreign currency market; (ii) the acceptance of foreign financial instruments on a Romanian currency market; (iii) acquisitions by non-residents of Romanian financial instruments on the currency market; and (iv) acquisitions by residents of foreign financial instruments on the currency market. These operations were subject to authorization even if performed through accounts opened by residents abroad.
The NBR will also issue separate secondary regulations concerning: (i) the foreign exchange market between banks; (ii) the performance of foreign exchange operations; (iii) the physical import and export of cash; and (iv) the safeguard measures that may be taken pursuant to the liberalization of foreign exchange capital operations.
The safeguard measures have already been approved through NBR Regulation 5/2006.
The NBR may take safeguard measures if pressures on the foreign exchange market lead to a severe disruption in monetary policy and the exchange rate. The NBR may: (i) impose a duty on residents and non-residents to give the NBR 10 days' advance notice of their intent to perform short-term foreign exchange capital operations; (ii) establish limits on short-term foreign exchange capital operations generating capital entries/exits of residents/non-residents; (iii) preserve in its account, for a limited duration, some parts of the amounts derived from such operations; and (iv) enforce a fee for transactions on the foreign exchange market between banks to perform such operations.
In all cases, the safeguard measures provided by NBR Regulation 5/2006 are limited to no longer than six months and may be taken only if notice has been submitted to the European Commission and to the other member states. The Commission has full control over these measures – they may be amended, replaced or terminated subject to the express request of the Commission, even if the situation requiring the measures remains unchanged.
Continuing information duties
The repeal of the authorization requirements does not, however, lead to the cancellation of the notification duties (for statistical purposes) owed to the NBR, set out by other regulations.
There is still an obligation (pursuant to NBR Norm 17/2002) to give notice of foreign exchange capital operations representing foreign private medium and short-term debt, that is, financial loans with a due date exceeding one year that are granted by non-residents to residents, including loans related to international trade, as well as the initial public offering of credit instruments whose due dates exceed one year and are issued by residents on a foreign securities market.
Other notification obligations that remain in force are those provided by NBR Norm 2/2004, including the obligation of resident legal persons that own accounts opened abroad to notify the Statistics Department of the NBR on a monthly basis of transactions operated through these accounts, and the obligation to give notice of direct investments of Romanian residents overseas (in cases involving an acquisition of at least 10% of the share capital of a non-resident company).
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