The paper aims to estimate the currency demand and the size of Romanian shadow economy (SE) using a revised version of the currency demand approach. This article is an attempt to examine the short and long-run relationship between currency demand, real income, tax burden, interest rate and wage ratio in the case of Romania’s economy. The bounds testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework is applied to quarterly data for the period 2000 to 2010 in order to investigate whether a longrun equilibrium relationship exists between currency demand and its determinants. The result of the bounds test indicates that there is a stable long-run relationship between the currency demand and its determinants. In addition, the CUSUM and CUSUMSQ tests confirm the stability of the money demand function. This research provides fresh evidence on the size of the SE to the recorded GDP in Romania which ranges from 45% to 37.4% over the estimation period.