Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn't have its own currency.
Cyprus may announce what types of controls it plans to implement, before its banks are scheduled to reopen tomorrow. The country’s leaders are seeking to prevent the flight of money from the island’s lenders, which have been closed for almost two weeks. Russian holdings in Cypriot banks are estimated by Moody’s Investors Service to be $31 billion, or about a quarter of total deposits.
Parliament last week gave wide-ranging powers to the central bank governor, Panicos Demetriades, and Finance Minister Sarris, including the ability to limit daily withdrawals and force the renewal of time deposits upon maturity. The two officials also can restrict the opening of new accounts, credit- or debit-card use, wire transfers among the branches of the same bank and non-cash transactions.
A rush of money out of Cyprus would shift more financing responsibility to the European Central Bank, which provides about €10 billion of emergency loans to the country’s lenders. After €30 billion, the ECB would have to lower its standards for the collateral it demands from Cypriot banks, Panigirtzoglou said. With deposit flight and rising loan losses in Cyprus and Greece, the ECB could lose money on the funds it lends.
Full article
© Bloomberg
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article