Dow Jones has details of the new capital controls that Cyprus will impose on its banks when they re-open in order to prevent a full-fledged bank run.
Capital controls are usually a last-ditch effort by policymakers to prevent market outcomes that seem unavoidable. In this case, confidence in Cypriot banks has been shattered in the wake of the financial crisis of recent days.
Banks have been shut down since March 15, and depositors have had only limited access to their cash. It's become fairly obvious after seeing the lines at ATMs in Cyprus that depositors are trying to get that cash out as soon as they can.
So, here is the Cypriot plan to try to mitigate that.
Details come via Dow Jones:
*Cyprus to Suspend Cashing of Checks, Allow Check Deposits -Officials
*Cyprus Capital Control Decree Valid for 7 Days Starting Thursday -Officials— DJ FX Trader (@djfxtrader) March 27, 2013
*Cyprus Capital Control Measures Apply to All Accounts Irrespective of Currency -Officials— DJ FX Trader (@djfxtrader) March 27, 2013
*Cyprus Capital Controls Apply To All Banks, Not Just Those Involved In Bailout -Officials— DJ FX Trader (@djfxtrader) March 27, 2013
*Cyprus to Cap All Card Transactions at EUR5,000 Per Person, Per Month -Officials— DJ FX Trader (@djfxtrader) March 27, 2013
Arguably one of the worst aspects of the capital controls, though, is that they serve to undermine confidence in the common currency. The euro area is built partly on the premise that there is a free flow of capital between member states. This is the first time the euro zone has ever imposed capital controls, and the decision was widely panned when it was announced a week ago.
At any rate, it certainly doesn't sound like fun for depositors in Cypriot banks.
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