The Cypriot euro launched today
- Published on Thursday, 28 March 2013 06:22
- 1 Comment
Heavily-guarded trucks loaded with euros headed to the Central Bank of CyprusBanks in Cyprus will open today at noon for the first time in nearly two weeks. The terms of the bail-in by the Trioka were only finalized on Monday, which called for a ‘levy’ on uninsured deposit (deposits over €100,000) of up to 40%. Banks remained closed in the meantime until further clarification and to give the government time to put in place capital controls, in effect creating a new currency, the Cypriot euro. Here’s more from The Wall Street Journal:
Terms of the revised bailout reached early this week delivered a big blow to many depositors in Cyprus’s financial-services industry, long the pride of this Mediterranean island nation. Big depositors at the largest, Bank of Cyprus PCL, are expected to lose as much as 40% on their deposits and those at the second-largest, Cyprus Popular Bank PCL, could lose as much as four-fifths of their uninsured deposits, according to government estimates.
The government decree on capital controls, which will apply to all depositors in Cypriot banks, will cap total transactions on any card—credit or debit, and on transactions inside the country or out—at €5,000 a month. A late draft of the decree, which officials described earlier Wednesday, would have suspended all international transactions. The decree also caps withdrawals from bank outlets or cash machines will be capped at €300 per day.
People won’t be able to take more than the equivalent of €3,000 in cash out of the country per person per trip.
The measures will be in place for a week starting Thursday, according to the decree. That timeline will be revisited weekly to account for the latest deposit flight, according to one Cypriot official, who indicated that the controls could last well into the future.
Such measures would be “temporary,” Cyprus’s Finance Minister Michalis Sarris told reporters Tuesday. He declined to specify how long they might be in place. One European Union official said capital controls of some form would be in place in Cyprus “for months.”
Read the full article from here.First of all, capital controls never last a week, one month or several months, they typically last for a couple of years or more as in Argentina’s case or even in Malaysia’s case. So if Cypriot government officials want to place a time on capital controls they should say, 24 months, 36 months or 48 months if that sounds better than years. These capital controls in effect kick Cyprus out of the euro. The purpose of having a unified currency is to have free movement of capital among member countries. These capital controls kill this objective. If depositors cannot take out their money or use it as they wish, this puts further stress on them and the economy, which is headed for depression. As of today, a euro in Cyprus is less valuable than a euro in the rest of the Eurozone. Officials in Cyprus are now calling for an investigation in to large sums of money leaving Cypriot banks in the weeks leading up to bank closures. Here’s more from the same WSJ article:
The chairman of the Committee for Institutions in the Cypriot Parliament, Deputy Dimitris Syllouris, said he had submitted a letter to the Central Bank of Cyprus demanding an investigation into account holders who moved large sums of cash out of the country in the weeks ahead of Cyprus’s chaotic bailout talks.
He said he had received information about individuals and businesses moving money out of Cyprus weeks ahead of the bailout deal—a move that wouldn’t be illegal but could imply that some depositors had warning that negotiations for a bailout could, for the first time in the financial crisis that has rattled the euro zone, take a cut out of regular bank deposits.
Asked whether his suspicions focused on one specific group of depositors, he said “politicians, all sorts of people, and bankers themselves are no better.”
The UK’s Daily Mail reported last week here that the President of Cyprus warned his friends about what was coming. Let’s see if these investigations lead them there.
In other news, Slovenia, which is widely expected to ask for a bail-out next, is saying that it will not need a bail-out, which means, it will need a bail-out.