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6  BIS Review 5/2010  Chart 2  Monetisation of economy* percent  40  35.9  35 30  29.9  34.5  32.2  25.6  25 20 15 10 5 0 2004  2005  2006  2007  2008 * M3/GDP  Source: National Bank of Romania, National Institute of Statistics  The exchange rate appreciated in both real and nominal terms. The domestic currency appreciated in nominal terms from nearly RON/EUR 4.1 in January 2004 to RON/EUR 3.1 in July 2007 (about 24 percent). Along with the relatively high fiscal dominance and the net debtor position of the National Bank of Romania (NBR), heavy capital inflows became a serious matter of concern in terms of implementing inflation targeting, i.e. the new monetary policy strategy adopted in August 2005. While boosting disinflation, the domestic currency appreciation was so strong that it tended to affect the external competitiveness of Romania. To this added the episodes of high volatility on the foreign exchange market. As in other CEE countries, foreign banks operating in Romania took funds from their euro area parent-banks. In 2004, nearly 72 percent of liabilities came from the euro area and 21 percent from the United Kingdom. During 2004–2008, foreign liabilities of the banks in Romania increased more than six times, from EUR 3.8 billion to EUR 24.5 billion. Such rises were reported across the entire maturity spectrum. The surge in banks’ foreign currency holdings and the appreciation of the domestic currency acted jointly towards boosting lending in foreign currency.