Summary of Cypriot capital controls

From a number of sources (CNN, USAToday, FT)

No Eurozone country, since the creation of the Euro, has ever instituted capital controls. It’s not really allowed, except in exceptional circumstances. Which goes to show the value of rules with exceptions for “exceptional circumstances”. Which is to say, not much.

The cost to large depositors

Deposits above 100,000 euros have been frozen at both banks. They could be wiped out entirely at Popular. At Bank of Cyprus, about 40% will be converted into equity.

So that is an absolute bank failure, no two ways about it.

The capital controls

depositors would be able to withdraw no more than €300 in cash each day, said people familiar with the move. Transfers over €5,000 would require permission of the central bank.

Overseas credit card transactions would be limited to €5,000 per month, but unrestricted in Cyprus. And there would be a ban on people taking more than €3,000 of bank notes out of the country per trip.

These rules will expire in 7 days. Oh, unless they’re renewed. Prediction – they will be renewed.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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  1. I’ve worked it out. They are trying to force cash out of the banking system so that it goes into property, the stock market and is spent. An extremely dangerous gamble.

    1. Erm, no. The capital controls are restricting the outflow of capital from banks. So they definitely aren’t pushing capital into property or equity markets.

  2. Erm, you miss the point. Think bigger than Cyprus. Far bigger. Velocity of money is low so the banksters want to do what ? This is designed to strike fear into depositors everywhere. These people don’t play small games on tiny islands alone.

    1. If people withdraw money in panic, even the current high liquidity levels of banks won’t be sufficient and many more banks will fail due to liquidity risks. Occam’s Razor suggests the simpler theory is usually the better one – and the common view explains the actions in Cyprus quite well without your conspiracy theory. You suggest looking wider than Cyprus without explaining what, other than Cyprus, you’re talking about.

  3. In your view its the better one. My view is completely different due to my worldwide experience instead of local JHB corner office, drive in 4 hours of traffic/day view.

    1. Oh in that case. Ok, why don’t you make a specific, testable prediction? I’ll see whether I disagree and then we can see what actually happens? Otherwise I’m going to stop approving your trolling.

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