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Although the statement may sound abstract, money is the foundation of modern economic systems and an essential element in the decisions made by consumers, firms, and financial intermediaries. It is the means through which households and businesses earn income, purchase goods and services, save, invest, pay social security contributions and property and personal insurance premiums, extend and receive credit, while financial markets allocate capital to finance economic activity.

The fundamental objective of the National Bank of Romania (NBR) is to ensure and maintain price stability (Law No. 312/2004, Article 2(1)). Another concern, which has become increasingly important in recent years, is ensuring financial stability. Indeed, by maintaining price stability, the NBR contributes to financial stability; conversely, a stable financial environment facilitates the achievement of price stability.

Monetary stability means the constancy of the domestic and/or external value of money [1]. This constancy reflects the overall equilibrium of the economy and manifests itself in low and relatively predictable inflation and limited exchange-rate volatility.

The NBR’s inflation target is expressed as a stationary multi-year target of 2.5% ±1 percentage point. This means that the institution regards an annual increase in prices of 2.5% as desirable, while allowing normal fluctuations in the annual inflation rate within a range of 1.5% to 3.5%.

Financial stability is the capacity of the financial system to absorb financial imbalances arising endogenously or as a result of significant and unforeseen exogenous events, thereby facilitating the normal functioning of the economy [2]. If the financial system fails to meet these requirements, vulnerabilities may emerge that can generate financial instability and adversely affect the economy.

Both objectives play an important role in the functioning of the economy, which is itself essential to society’s material well-being.

The relationship between the NBR’s activities and trust in the leu can be highlighted by examining the functions of money. Although this is not the only possible approach, it helps reveal the central bank’s economic and social role and contributes to public understanding of both the rationale for its existence and the effectiveness of its decisions and actions.

Money – understood here broadly as encompassing all forms of currency and representations of value: coins, banknotes, bank deposits or book money, and electronic or digital money – performs three defining functions: store of value, measure of value, and medium of exchange. These functions may appear simple and intuitive, yet fulfilling them under the specific conditions of a particular country is far from straightforward. Moreover, the three functions are interconnected and mutually reinforcing in the dynamics of economic activity. In other words, the functions of money work together to enable economic processes to unfold.

Beneath the surface lies a series of economic and social processes that give substance to these functions and have major implications for central banking. To illustrate the general causal relationship between the NBR’s activities and the ability of the national currency to perform its economic functions effectively, several examples are presented below.

Store of Value

The function of money as a store of value consists in transferring the value of goods over time, a necessity arising from the temporal and spatial separation of acts of exchange. To serve as a reliable store of value, money must retain its value over an extended period. Where it exists in physical form – that is, as cash – it must also be capable of being hoarded by the public or safely deposited with banks, while its real value must remain predictable. In other words, the value of money should not fluctuate in the same way as the value – the market price or quotation – of financial assets such as shares, bonds, government securities, and the like.

Money’s store-of-value function therefore depends fundamentally on expectations concerning the future evolution of its value. Inflation erodes the real value of money, while deflation increases the real financial burden associated with monetary obligations. Both types of effect undermine trust in money. Maintaining low inflation over an extended period is therefore a prerequisite for the various forms of money circulating in the economy to function as a reliable store of value. This is why, as already noted, ensuring and maintaining price stability constitutes the NBR’s official objective.

Similarly, confidence in the integrity of bank deposits is particularly important for money’s store-of-value function. If customers fear that the money deposited with banks will lose its value, their trust in the national currency will rapidly disappear. Banking regulation plays an essential role in this respect, including capital and liquidity requirements imposed on banks, the resilience framework [3], and the deposit guarantee system [4]. By reducing the risk that depositors will suffer losses when shocks affect the banking system or individual banks fail, these safety nets help maintain trust in the leu as a reliable store of value.

Measure of Value

In its simplest form, money as a measure of value (tertium comparationis) serves as the standard in which prices are expressed and payments arising from the exchange of goods are made.

A central element of money’s function as a measure of value is the principle of perfect fungibility. According to this principle, all forms of money – banknotes, coins, sight or term bank deposits and, potentially, electronic money – must have exactly the same nominal value and be convertible into one another at par, on a one-to-one basis and without additional cost. In other words, the value of one leu held in a person’s bank account must equal the value of a one-leu banknote in that person’s pocket – or in anyone else’s.

The perfect fungibility, or singleness of money, is essential to monetary and financial stability because economic participants can be confident that, at any given moment, all the forms of money they routinely use have the same value. This equivalence underpins trust in money and enables it to serve as a coherent, unambiguous, and universal measure of value.

Maintaining the perfect fungibility of different forms of money is not, however, automatic. The reason is that contemporary economies contain two broad categories of money: money created by the central bank and money created by commercial banks.

Central bank money consists of cash – banknotes and coins – and the balances held by commercial banks in accounts with the central bank. The latter constitute bank reserves and provide the ultimate means of settlement for interbank transactions. This form of money, referred to in the literature as primary money, is the anchor of the monetary system, which is why the aggregate measuring its quantity is known as the monetary base. This aggregate is directly influenced by the central bank and is most often the variable in relation to which the immediate objectives of monetary policy are established.

Money created by commercial banks – deposit or book money – is the principal form of money used in the "real" economy. When banks extend loans to their customers, they create bank deposits that are themselves used as money through cashless payments. This ability of commercial banks to create money is a privilege conferred by their banking licence.

That privilege, however, entails certain responsibilities. Bank deposits must be convertible at par into cash and must have the same value throughout the country. Meeting this condition requires an appropriate institutional framework capable of ensuring the convertibility of commercial bank money into primary money – and vice versa – at a one-to-one ratio.

Meeting this requirement is the principal justification for the regulation and supervision of commercial banks by the NBR, which constitutes a central pillar of financial stability. It ensures that one leu created by a commercial bank is at all times equivalent to a one-leu banknote, two 50-bani coins, ten 10-bani coins, and so forth, issued by the NBR. This equivalence gives the various forms of money currently circulating in Romania perfect fungibility and allows money created by commercial banks to be regarded as just as good as money created by the NBR [5].

The importance of money’s function as a measure of value has become particularly significant with the emergence of new forms of electronic money (e-money), including stablecoins, tokenised deposits, and, potentially, central bank digital currencies (CBDCs) [6]. These new forms of money enable faster payments, lower transaction costs, and more efficient settlement of obligations. Yet for them to be used with confidence throughout the economy, they must be fully interoperable with existing forms of money and convertible into one another at par.

In Romania, this requirement is addressed through regulations governing electronic money. Their purpose is to protect customers’ funds, safeguard financial stability, and prevent financial crime; they impose strict authorisation and operating requirements similar to those applicable to the traditional banking system. This legal framework is aligned with EU legislation through the transposition of European directives and the direct application of EU regulations. As a result, new forms of electronic money can foster innovation and expand choice without undermining money’s role as a measure of value [7].

Another prerequisite for money to perform its function as a measure of value is the effective finality of payments. Put simply, when money moves from one holder to another, successive holders must be certain that the transfer has been conclusively completed. For example, when the customer of a commercial bank instructs that bank to transfer a sum of money to a beneficiary’s account, the payer’s bank becomes indebted to the beneficiary’s bank. This interbank exposure must ultimately be settled, and settlement is carried out using primary money created by the central bank. Discharging interbank obligations through payment in this superior form of money – high-powered money, whose value does not depend on the solvency of any private institution – allows the interbank money market to function. A range of transactions essential to the stability of the banking sector take place on this market: the granting and receipt of loans with different maturities, transactions in government securities, and deposits with or borrowing from the central bank, among others.

More generally, payment finality means that, once payments have been completed, the parties can be certain that they are definitive and cannot subsequently be reversed. This is particularly important in interbank and financial markets, where transactions involve large amounts and create significant mutual exposures that remain outstanding until settlement is final. For example, to secure an interbank loan, one bank may temporarily transfer securities or government bonds to another bank until the loan has been repaid.

The NBR provides services related to interbank operations by managing the accounts held by commercial banks and through the interbank market infrastructure that it regulates and operates. These arrangements are essential to ensuring the finality of interbank transactions, thereby reducing credit risk, limiting participants’ exposures, and supporting confidence in the integrity of all payment systems throughout the economy.

It follows that money’s function as a measure of value encompasses not only the expression of prices but also the institutions that ensure the singleness of money and the infrastructures that enable payments to be executed and settled with finality.

Medium of Exchange

Money’s function as a medium of exchange (tertium permutationis) consists in facilitating the transactions that generate gross domestic product. Money makes it possible to exchange goods without resorting to the hopelessly inefficient mechanism of barter and facilitates flows of goods, services, and financial assets throughout the economy. For this function to be performed effectively, money must be accessible to everyone wishing to transact, must be used efficiently, and must circulate smoothly through the financial system, including during periods of economic difficulty.

The ready availability of money requires, first and foremost, that households and firms be able at any time to use their bank deposits either to withdraw cash or to make account-based payments. In Romania, the availability of bank deposits – essential to money’s function as a medium of exchange – is ensured by banking legislation and by the secondary legislation embodied in NBR regulations, which specify the technical and prudential rules that commercial banks must observe. Another means of promptly ensuring this availability is the direct provision of liquidity to commercial banks through the NBR’s open-market operations [8].

The issue, however, is not merely economic agents’ access to money already in circulation. It also concerns the ability of the quantity of money to increase or decrease – the elasticity of the money supply – in response to the economy’s demand for money. In other words, in its money-creating role, the banking system must be sufficiently responsive to the economy’s demand for money.

In contemporary monetary systems, the quantity of money in circulation increases mainly through loans extended by commercial banks to the non-bank sectors of the economy. If banks are unable to lend to customers who have productive needs or opportunities, economic activity is impeded. It is, of course, important to avoid excessive bank-credit growth during periods of economic overheating or for the purpose of financing the government budget deficit [9]. The NBR’s key role in ensuring the availability of bank credit during recessions – and thereby preventing procyclical credit contractions that could exacerbate economic crises – is exercised through the stress tests it conducts and the capital requirements it imposes on commercial banks.

An important factor determining how effectively money, in its role as a medium of exchange, supports economic activity is the speed at which it circulates through the economy. Put simply, the more efficiently money is used in transactions and the more readily it circulates, the more effectively it supports economic activity.

If, for example, households hoard physical money – cash – it can no longer be used efficiently throughout the economy. Confidence in bank deposits is therefore important, and the NBR seeks to create and maintain that confidence through the prudential regulation and supervision of banking activities discussed above. An individual will deposit money with a bank, thereby returning it to economic circulation, only if convinced that it can be withdrawn whenever desired. If individuals lose that assurance, they will hold cash for precautionary reasons, thereby reducing the extent to which money is used throughout the economy.

An important component of the velocity of money is the smooth functioning of cashless payments. If account-based payments are difficult, costly, or insecure, money circulates less readily, preventing it from efficiently performing its function as a medium of exchange. The NBR’s regulation and management of payment systems, interbank market infrastructure, and emerging forms of electronic money therefore seek to ensure the security and efficiency of monetary circulation while simultaneously fostering innovation in this field [10].

It follows that money’s function as a medium of exchange encompasses all the elements that allow money to circulate smoothly throughout the economy: secure bank deposits, commercial banks capable of creating money by extending credit to the economy, efficient payment systems, deposit guarantee institutions, and a functioning interbank market, so that the banking system does not seize up when confronted with various types of shocks.

Implications for the Financial Stability Strategy

As already shown, a number of aspects of the NBR’s activities can be understood in terms of how it ensures that money performs its three defining functions. This framework also provides a useful perspective from which to analyse the NBR’s financial stability strategy.

This strategy is based on the early identification of systemic risks, the use of macroprudential regulation and supervision of the banking system, and cooperation with the Financial Supervisory Authority (ASF) and the Government, through the Ministry of Finance, within the National Committee for Macroprudential Oversight (NCMO).

The NBR also periodically conducts analyses and research on the performance of the financial system and formulates proposals, recommendations, or actions aimed at preventing systemic risks to financial stability. It regularly publishes financial stability reports examining the main challenges arising from the domestic and international economic and financial environment, as well as the risks to financial stability identified during the period under review. This assessment is complemented by up-to-date information on market infrastructures, the regulatory framework, and macroprudential policies.

This strategy entails a range of responsibilities – regulation, supervision, resilience, continuous risk monitoring, transparency, and others – and these responsibilities can also be understood as ways of creating the conditions necessary for money to perform its defining functions. Identifying emerging risks means, in effect, preparing the banking system to withstand shocks so that households and firms are not tempted to accumulate liquidity during a crisis, thereby undermining its recycling through the economic system and weakening money’s role as a medium of exchange. Maintaining bank resilience means ensuring that banks, non-bank financial institutions, financial markets, and payment infrastructures support households and firms, allowing money and capital to circulate smoothly whenever necessary. Facilitating innovation in settlement and payments seeks to increase transaction efficiency, which is an important manifestation of money’s role as a medium of exchange.

Given this interdependence, the question arises whether the functions of money should be used as an essential criterion in designing and implementing the NBR’s financial stability strategy. One might say that the development and implementation of this strategy constitute the area of the NBR’s activity most directly connected with the risks or frictions affecting money’s ability to function as a store of value, a measure of value, and a medium of exchange – that is, with phenomena that disrupt the proper provision of the banking and financial services through which these functions are performed.

Although this framework does not provide mechanical answers to every question involved in designing a financial stability strategy, it does offer a logical benchmark against which that strategy can be assessed.

Attacks on Banks and Trust in the Leu

Against this background, the many public discussions about Romanian banks that contain populist, demagogic, anti-capitalist, and anti-Western overtones are difficult to understand. Beyond the latent dangers represented by the attitudes underlying these narratives, the major problem is that they give rise to dangerous legislative initiatives – such as the so-called "datio in solutum law" (legea dării în plată) – which may generate systemic risk for the entire banking sector and have major implications for financial stability [11].

One recent accusation levelled against Romanian banks is that they manipulate the interbank interest rate, ROBOR, thereby increasing the cost of bank credit, reducing its volume and, implicitly, contributing to economic stagnation. This official accusation was made by a state authority, the Romanian Competition Council, which imposed record fines totalling RON 3.73 billion on ten commercial banks. The accusation and the authority’s official finding that the banks had coordinated their behaviour and manipulated the ROBOR index were then widely reported and disseminated by the mainstream press, news agencies, and economic and financial analysis platforms. This occurred despite the NBR’s warning that the fines – which represent between 5% and 7% of the banks’ revenues – could have serious economic and financial consequences, affecting the banking system’s ability to finance households and the national economy [12].

The Competition Council’s decision was sharply criticised by the Concordia Employers’ Confederation, one of Romania’s most powerful business associations. It described the decision as aggressive and populist and accused the Competition Council of changing the rules in the middle of the game [13].

The Romanian Association of Banks (ARB) likewise firmly rejected the Competition Council’s allegations and stated that the sanctioned banks would use all available legal remedies to overturn a decision they regard as abusive, unfounded, and unjust [14].

The role of banks in the economy is to support economic activity, thereby reducing both the probability and the severity of financial crises. By continuing to extend credit to their customers during a recession such as the current one, banks ensure the continuity of financing for economic activity where and when it is most needed. In monetary terms, this means that the money supply retains its elasticity even under the pressure exerted by economic recession, which is essential both to the performance of money’s functions and to trust in the leu.

Accusations against banks are therefore extremely dangerous. Public delegitimisation of the banking system and, implicitly, of the NBR directly affects the cost of credit extended by banks to firms and households, reduces the state’s ability to finance its budget deficit, and undermines Romania’s credibility in the eyes of investors, rating agencies, and external partners. Allegations concerning the purported manipulation of ROBOR affect the functioning of the interbank market by creating unnecessary frictions that weaken the resilience of the banking sector and reduce its capacity to support the economy during periods of recession [15].

The banking sector – and, more broadly, the entire financial sector – is among the most heavily regulated areas of the economy, for reasons related to systemic risk and consumer protection. In Romania, the regulation of banking activity during the post-communist period began several years before the establishment of the Competition Council [16]. It was based on the idea that bank privatisation and competition among banks would improve the services they provide to the "real" economy, thereby contributing to financial stability. Since the liberalisation of banking activity began following the fall of communism, several banks have failed, demonstrating that competition in this sector is real.

Competition in banking is indeed important because banks play a primary role in financing economic activity. Banks must often cooperate – for example, in processing payments in the manner described above – and this can indeed raise competition-related issues. Nevertheless, public authorities should focus their efforts on removing the obstacles confronting banking activity rather than creating new problems.

This requires removing barriers to financing rapidly growing firms and small and medium-sized enterprises (SMEs), which often experience difficulty in obtaining the capital they need despite their potential to contribute significantly to economic growth. Overcoming the current recession depends not only on the amount of capital available but also on how efficiently that capital is allocated and used. At the level of the economy as a whole, such an economic policy is the most effective way to support economic growth because it not only makes credit more accessible but also increases the efficiency of investment.

Conclusions

Money performs three defining functions. It serves as a store of value, allowing households and firms to hold and exercise their purchasing power securely; it is a measure of value, enabling prices and contracts to be expressed in a stable unit; and it acts as a medium of exchange, facilitating payments and the flow of credit throughout the economy.

Like other modern central banks, the NBR is responsible for ensuring and maintaining both monetary and financial stability. Analysing its activities through the lens of the functions of money helps us understand the rationale for the existence of this essential institution of the Romanian state, as well as the directions in which its beneficial influence on the economy should be exercised. The functions of money provide a natural foundation for this analytical framework.

This article has presented several examples illustrating how such an approach can help us understand current issues concerning financial stability and trust in the leu. These are by no means the only possible examples; they were selected because they help broaden our understanding of the NBR’s economic and social role.

As the financial system continues to evolve, many more examples of this kind are likely to emerge. Technological advances, new forms of electronic money, changes in financial intermediation, the growing role of non-bank financial institutions, and developments that cannot yet be foreseen will undoubtedly create new challenges. The task facing all Romanian policymakers – and the NBR above all – will be to assess these developments against a rigorous criterion: whether they contribute to strengthening or, on the contrary, weakening trust in the leu.

Money has now entered a new period of transformation – the age of electronic money – which may reshape the financial and banking sector, the economy, and society as a whole.

References

[1] C. Kirițescu, E. Dobrescu, Money: A Concise Encyclopedia [Moneda. Mică enciclopedie], Editura Enciclopedică, Bucharest, 1998, p. 256.

[2] S. Cerna et al., Financial Stability: Theoretical and Practical Issues [Stabilitatea financiară. Probleme teoretice și practice], West University Publishing House, Timișoara, 2008, p. 4.

[3] Bank resilience refers to banks' capacity to withstand, adapt to, and recover from major economic, geopolitical, or technological shocks without interrupting their critical operations. It is no longer limited to financial soundness alone, but now also includes a major operational and digital component.

[4] See: P. Tulin, The Bank Deposit Guarantee Fund – 30 Years in the Service of Financial Stability [Fondul de Garantare a Depozitelor Bancare – 30 de ani în serviciul stabilității financiare], Piața Financiară, July–August 2026, pp. 106–107.

[5] The NBR defines, calculates, and periodically publishes data on several monetary aggregates, which it uses to quantify the money supply according to various definitions of the term. These monetary aggregates, similar to those used in other countries, constitute official definitions of money. See: S. Cerna, Monetary Economics [Economie monetară], West University Publishing House, Timișoara, 2009, pp. 151–156..

[6] S. Cerna, The Metamorphoses of Money: Causes and Effects. Electronic Money [Metamorfozele banilor: cauze și efecte. Banii electronici], in I. M. Oehler-Șincai (Ed.), The International Payments System in the Age of Electronic Money [Sistemul internațional de plăți în era banilor electronici], Editura Universitară, Bucharest, 2024.

[7] Recently, the European Central Bank launched the pilot project for the digital euro. Romania is not a member of the Economic and Monetary Union and will therefore not benefit from the advantages of the digital euro. Our country has repeatedly postponed the adoption of the euro and, more recently, has moved further away from meeting the criteria required for this purpose.

[8] Open-market operations are operations through which the central bank buys and sells government securities from and to commercial banks and other participants in the interbank market. See: S. Cerna, Monetary Policy [Politica monetară], Romanian Academy Publishing House, Bucharest, 2014, pp. 386–390.

[9] C. Borio, On Money, Debt, Trust and Central Banking, BIS Working Papers, No. 763, 2019.

[10] Romania has made some progress in improving its payment infrastructures. Instant payments are becoming an increasingly common part of everyday life. Moreover, public-private cooperation, such as the RoPay project, has demonstrated that practical innovations capable of bringing benefits to users are possible. See: C. Marinescu, CEE Annual Payments Forum – Resilience and Financial Sustainability.

[11] S. Cerna, Banks: "Factories" of Money, Not Capital [Băncile: «fabrici» de monedă, nu de capital], Ziarul Financiar, October 25, 2016.

[12] National Bank of Romania, "Necessary Clarifications Regarding the Competition Council's Decision" [Clarificări necesare în legătură cu decizia Consiliului Concurenței], June 11, 2026.

[13] Concordia Employers' Confederation, "Concordia Employers' Confederation Expresses Concern over the Competition Council's Recent Reactions towards the Banking System" [Confederația Patronală Concordia își exprimă îngrijorarea în raport cu reacțiile recente ale Consiliului Concurenței față de sistemul bancar], press release, June 17, 2026.

[14] Romanian Association of Banks, "Open Letter from Romania's Financial and Banking Sector" [Scrisoare deschisă din partea sectorului financiar-bancar din România], June 19, 2026.

[15] For a more detailed presentation of the organisation and functioning of the interbank (money) market, see the author's article: The Money Market Explained for Everyone [Piața monetară pe înțelesul tuturor], Piața Financiară, No. 05 (366), May 2026, pp. 32–35.

[16] The new banking laws were enacted in 1991. See: The "Cristian Popișteanu" Annual Symposium on Banking History and Civilisation – 34th Edition. The Year 1991 at the National Bank of Romania: 35 Years since the Adoption of the New Banking Laws [Simpozionul anual de istorie și civilizație bancară „Cristian Popișteanu” – ediția a XXXIV-a. Anul 1991 la Banca Națională a României. 35 de ani de la adoptarea noilor legi bancare].

Photo source: flickr.com.