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Neon Tommy - Annenberg digital news

Cyprus Banks Set To Reopen With Strict Capital Controls

Matt Pressberg |
March 27, 2013 | 10:04 p.m. PDT

Executive Producer

Banks in Cyprus will open after 11 days off. (Petros3/Wikimedia Commons)
Banks in Cyprus will open after 11 days off. (Petros3/Wikimedia Commons)
Banks in Cyprus are set to open Thursday after an 11-day hiatus, with strict but supposedly very temporary capital controls in place to prevent a wholesale exodus of cash from the island nation.

As the Wall Street Journal reports, by government decree, people will be limited to €5,000 per month in total credit and debit card transactions. In addition, bank or ATM withdrawals will be capped at €300 per day and Cypriots will not be allowed to take more than €3,000 in cash per person on each trip out of the country.

These strict limitations on the movement of euros in and out of Cyprus, particularly regarding business transactions, effectively mean that Cyprus-based euros do not trade at par with euros in the rest of the currency union. One euro deposited in a Credit Lyonnais branch in Marseille or in a wallet in Amsterdam is now worth more than one euro at the Bank of Cyprus or in a cash register in Nicosia. According to a Reuters analysis:

“Restrictions on payments would be a far bigger incursion into the functioning of Europe's internal market than controls on capital transfers, as euros held in banks in Cyprus could not be used to pay for goods and services elsewhere in the bloc.

By definition, that would make them less liquid than French or German euros and de facto, worth less.”

After rejecting a proposal from Eurozone officials to save the country’s banking sector that controversially took a bite out of heretofore insured depositors with accounts under €100,000, Cyprus’ parliament accepted a deal that hammers large account holders (many of whom are Russian), using uninsured deposits over €100,000 to pay off the debts of the country’s second-largest bank, Laiki, and to help recapitalize its largest, the Bank of Cyprus.

The Cypriot finance minister, Michalis Sarris, said that large depositors at Laika might lose as much as 80 percent of their holdings, which brings a dramatic end to Cyprus’ outwardly focused banking sector, wholly tied to its reputation as a safe haven to stash (Russian) wealth.

Read more of Neon Tommy’s coverage of Cyprus here.

Reach Executive Producer Matt Pressberg here.



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