Counterparties: Cyprus births controls
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Today, Cyprus announced it will impose capital controls restricting where, when, and how depositors can access and use their money. Here are some of the things depositors wonâ€™t be able to do when the banks open in Cyprus tomorrow:
- cash a check
- withdraw more than â‚¬300 a day
- take more than â‚¬3000 in cash per person in any currency out of the country
- purchase more than â‚¬5000 in foreign goods and services with a credit card each month
- Make non-cash payments outside Cyprus without documentation showing they are paying for imports
These restrictions are intended to last for seven days, but Hugo Dixon doubts theyâ€™ll be that short-lived. In Iceland, capital controls have been in effect for seven years, and will stay in place for at least another two.
Weâ€™ll know for sure what an economy under these restrictions looks like when banks open tomorrow for the first time in ten days, but itâ€™s pretty far from a modern, functioning economy. As far as the euro goes, David Keohane says the clear-headed thing: capital controls obviously â€śmake a mockery of the idea of a currency unionâ€ť.
Cardiff Garcia looks at at a meta-study on capital controls and finds that only once — in Malaysia — were they effective. In that case, the controls were â€śaccompanied by aggressive counter-cyclical spending, bans on short-selling the currency and trading it offshore, and defending the ringgit against speculators by fixing it to the dollarâ€ť. Those things arenâ€™t happening in Cyprus and wonâ€™t be.
Paul Krugman thinks the only way forward for Cyprus is a euro exit. Unfortunately for its citizens and economy, he doesnâ€™t think it will come anytime soon.
All of which means that in Cyprus, a cash-stuffed mattress is once again the ultimate safety net. — Ben Walsh
On to todayâ€™s links:
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