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Cyprus Capital Controls: What to Look for
Cyprus officials continue to suggest that the banks will re-open tomorrow. Before the banks can re-open some specific capital controls will be announced. It is a very thorny issue and there may yet be further delays
The purpose of the capital controls will determine their shape. Although Cypriot officials have a wide berth to impose capital controls, a relatively narrow restrictions are likely. The purpose is to allow as smooth of a restructuring of the two largest banks in Cyprus. This means there will likely be continued limits on how much can be taken from bank accounts. In order to separate the insured depositors, who in Cyprus 2.0 will be left whole, and the uninsured depositors, the ability to move money between accounts will also likely be limited.
The important take away, though is that these are not the kind of capital controls that are meant to address the external deficit or impact cross border settlement as in the Target2 system. Only if capital controls venture into this area, will talk Cypriot euro make sense (which of course has not stopped some from speculating that this is already taking place).
The EU Treaty on the Functioning of the European Union allows for capital controls in limited, but specified circumstances. Officials from the Troika appear to recognize and support the need for limited capital controls in Cyprus.
The Cypriot finance minister is suggesting that the capital controls instituted could be tailor made for each bank, depending on the particulars. He has suggested that the capital controls could have a short shelf life or a week or so. However, while market participants rightfully skeptical. Whether it is the capital controls introduced in the 1997-98 Asian financial crisis, or more recently in Iceland (where capital controls are still in place) and have lasted much longer than initially anticipated.
However, these capital controls were meant to address balance of payments issues. The capital controls that will soon by announced by Cypriot officials are not meant to address that but rather to try to maximize the opportunity to stabilize the banking sector in this hazardous transition.
The specifics are expected to be announced later today. They will likely include limits on daily cash withdrawals, restrictions on account transfers within the same bank and, the likely forced extension of time deposits at maturity.
As unsavory as the capital controls are, in this particular context, they do seem necessary and not a prelude of the beginning of a Cypriot euro, or even, more broadly, a Southern euro. EMU, as we have argued, and many others have observed, was born incomplete and it is growing institutional capacity through the innovation that the crisis requires.
The Cypriot crisis is no more a turning point than the Greek, Irish, Portuguese and Spanish assistance. The ECB, EU and IMF analysis, positions, and/or capacities have evolved. Each country has some unique characteristics and share some common characteristics. The individually negotiating programs are tailored to country specific issues, and shaped by the Troika's institutional capacity, and the political interests of the major creditor countries, like Germany.
We continue to be struck by the fact that although the Cypriot parliament's approval for the program is not needed, a vote by the German parliament is required. The bypassing of the Cypriot parliament does not seem necessary. Moreover, it needlessly antagonizes others, who fear a German hegemon.
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I imagine I'm not the only reader who thought for a moment he had accidently gone to the URL of the HuffPo as I read this mainstream drivel. No insights, no new information, quite boring.
The trouble with giving out free lunches is that eventually the cook runs out of stuff to cook, the electric lights go off, the cook stops coming to work, and the rats eat what is left over.
I agree with Marc that Cyprus in not THE the turning point - rather it is the Troika's HANDLING of Cyprus that is the MAJOR turning point -- because the Troika has essentially destroyed all confidence in any non-core EU bank... In the same way, the Titanic was not sunk because there was an iceberg in the Atlantic, but rather it was sunk because of the way that the captain and crew handled the ship while knowing that icebergs were present...
ETRESOI, How come no one is talking about capital controls in France? Can you say more about what's going on? This is BIG. Is this at all banks?
Not a good article - ZH is not the place to make arguments for capital controls, no matter what the reasoning. There are no sheeple here....peddle this drivel eslewhere
so ZH forum is ideologically brain washed to the point of rebutting a means of maybe NOT spreading the speculative plague doped on QE/ZIRP which is going nowhere?
By obliging the Oligarchs to cough up their past wealth which is not feeding the economy, only sterile plays feeding the debt beast, via shadow banking profits all the while lowering the tsunami scenario's ante to attain deflagration point...
A bail-in of banker wealth stops this madness even though it breaks the current market spikes. Not bad in itself, from the perspective of a financial site that calls itself "zero hedge" and advocates austerity before all else.
The anglo banks are drowning in derivative debts more than the euro counterparts but its hidden by weird accounting shenanigans, by QE and $ reserve status. The market plays today are the expression of Oligarchy power not of the people. WE ARE IN THE ROMAN COLISEUM AS WE THROW PEOPLE TO THE LIONS, AT THE BEHEST OF THESE MARKETS.
I am all for criticising Euro fumbling and state bureaucratic corruption garbed in neo fascist decrees, if we keep in perspective the fiat dissemination pump that continues to socialise debts and privatise profits at a speed which defies reserve monetary velocity; granted fed on the current hope of fracking gas out from US soil's bruised n abused orifices, so fast and deep as to be able to sing "bye bye" to peak oil.
Thus resuscitate hope of "winner mindset", alike Tiger Wood's attitude today, in all of WS scionista and scum buggery covered banksta oligarchy. "We have hope in a bull run based on supply side innovation that is just beginning on the backs of new energy horizon; a super cycle of american revival."
Wow, bulls eye to Bull of Hickock and thumbs down to doomer bears preferring PM to fiat hiccups.
That would be a new twist to ZH's vision of the future...
Take your pick : either its thieves fall out in global fiat debt tsunami OR its brave america that starts a new frontier rush leading to bear rout.
But don't confuse cause and effect, means and ends.
ZH wants to see the fiat wealth cake fall to zero but cannot propose a shock absorber to civilization's loss of all, like in Europe last century, other than cynical "we told you so first"... 'cos in PM and now bitcoins ( an electronic money!) we do trust more than in greenback god.
Really? How? Anarchy is no panacea and ideology will never cure reality if it defies history and human nature. The matrix will never accept this utopia and the "we the people" meme is not strong enuff in first world to impose it on a grass roots basis.
Its requires conquering the instruments of state first; as the world is governed more and more in top-down neo-feudality that tolerates no contradiction even from reality; that is evident!
"The Cypriot crisis is no more a turning point than the Greek, Irish, Portuguese and Spanish assistance."
The above quoted sentence is the most patently absurd and false statement I have read in some time. Obviously, hope springs eternal with banksters.
This statement is equally valid:
"The invention of the atomic bomb is no more a turning point than the invention of the firecracker, sparkler, or smoke bomb."
Nice analogy. The invention of the atomic bomb changed warfare and later created a stale mate between two nations or groups of nations which held nuclear arsenals, a.k.a M.A.D (mutual assured destruction). Maybe this Cyprus "template" will bring a similar result and recreate the stale mate in financial warfare?
I bet it's going to feel like a turning point for the people of Cyprus when their economy completely disintegrates.
"As unsavory as the capital controls are, in this particular context, they do seem necessary and not a prelude of the beginning of a Cypriot euro, or even, more broadly, a Southern euro. EMU, as we have argued, and many others have observed, was born incomplete and it is growing institutional capacity through the innovation that the crisis requires. "
Lol innovation, from the mouths of banksters.
The EMU was born incomplete"---The EMU was born with water on the brain; and is "learning on the job". When they were "planning" this farce, the Euro, I was studying the information that was available; and my conclusion was; no way. I haven't changed my mind.
"Not to pass judgment on capital controls"--are you insane? Capital controls are always a disaster.
+1. Politicians are terrible at anything having to do with economics. Historically speaking, they crash the bus more often than not... especially when it comes to any sort of direct manipulation of the markets. lol. What a clusterfuck.
Seems to me this is no mistake though. Which is why it could be a turning point in the game. We won't know quite so fast though. These things take time to unfold - which is why it is ridiculous to make a statement that this is not a turning point.
The Cypriot finance minister is suggesting that the capital controls instituted could be tailor made for each bank, depending on the particulars.
How else would they do it? If the capital controls are country-wide as opposed to to bank-specific how is Cyprus still in a monetary union?
The Cypriots are pushing the reopening date like the Southerners always push a due date for a loan! Manjana principle...
I have a 50' Catana catamaran available for charter in the area. For the right price (payable in gold), I am willing to cut through select parts of the collision bulkhead to allow other 'materials' to be inserted. We can then reglass and recoat the cutaway to look brand new.
As the vessel is high-latitude capable, you can name your destination, then enjoy a leisurely sail as the EU crumbles.
We sail flat and FAST.
We can comfortably sleep up to a party of 8.
"no one heard of a tiny town called Gettysburg" either.
"The Cypriot crisis is no more a turning point than the Greek, Irish, Portuguese and Spanish assistance."
Ok, Marc, if not turning points, then how about dominoes?
http://www.youtube.com/watch?v=y97rBdSYbkg
This Guy sounds like the captain of the Titanic. Remain calm everyone lololololo
We should be looking at what the EU, UK and US are doing in the same areas.
Not only is Cyprus the new template, following events in Cyprus and Spain, it is emerging that the UK, the EU and the USA are looking at new ways of taking your savings. Sometimes through the insured deposits as well. FDIC and Bank of England have a paper on this already (Dec 2012) and Spain has their own new measures in place as of last Friday.
http://tinyurl.com/c2e8zs5
Enjoy the ride!
"The Cypriot crisis is no more a turning point than the Greek, Irish, Portuguese and Spanish assistance." - LMFAO. Okay then, by your logic, the coming Italian, French, British, American... ...will also not be turning points. Halarious. I am sure people will simply accept lower standards of living across the board, and by lower, I mean much, much, lower. Look at the cost of healthcare, the cost of education, the cost of energy. Ignorant and arrogant is an understatement. By the way, there are numerous capital controls already in place and being discussed by other western governments. Cyprus is behind the curve when it comes to conditioning people to accepting theft as a matter of good policy.
Cyprus is a red herring. Here, in France, we are limited to €300 cash withdrawal per week and €3000 wire transfer out of France.
Bingo. When I was in middle school, "Great Britain", a small impoverished Island, had Capital Control; you could leave; but you couldn't take your money with you. It's the headstamp of a Bananna Republic.
How does that work? Businesses need to be able to wire more than 3k at one time. I'm sure the banks can lift the restriction as per their clients request. Non?
Did the ATMs unionize amd go on strike?
I love these fruit case paranoid comments. That is why I contribute. It is a very enriching and validating experience. Thank you for your support.
Marc your quote : "We continue to be struck by the fact that although the Cypriot parliament's approval for the program is not needed, a vote by the German parliament is required".
Think about it. This time it IS different, I'd suppose. Cyproits will know this too, within the week, I'd guess, may start slow, ends in a bang?
whether it is propaganda or intellectual masturbation is immaterial.
Hear, Hear. And let's not overlook the possibility it could be both at the same time.
How are those "limited" capital controls looking?
Despite the ad hominem remarks, other points of view appear to have greater breadth of vision.
A separate (EURO in name only) currency for Cyprus has been defacto created, and negative outcomes are predictable.
http://www.counterpunch.org/2013/03/26/death-by-bailout/
Yes, things are getting much better for these folks, must be our "lying eyes".
I now fully believe that the presence of |MrMarctoMarket| here is a kind of quid pro quo the Tylers' have had to strike with the TPTB for their continued presence on the net...
you insert a 'balanced measure' of our propaganda, and we let you stay online...something to that effect. There's no other way to understand how this guy ends up here. He's smoothing out the rough spots, but still swinging from the sandbar.
I bet anything that those capital controls are going to be real nasty, that's why they aren't saying anything about it until when the banks opens. People are going to flip out, trust me.
Unlike MTM,
MDB (Million Dollar Bonus) is at least KNOWINGLY sarcastic with his comments.