Counterparties: Cyprus births controls

By Ben Walsh
March 27, 2013

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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 won’t be able to do when the banks open in Cyprus tomorrow:

  • cash a check
  • withdraw more than €300 a day
  • take more than €3000 in cash per person in any currency out of the country
  • purchase more than €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 they’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.

We’ll know for sure what an economy under these restrictions looks like when banks open tomorrow for the first time in ten days, but it’s pretty far from a modern, functioning economy. As far as the euro goes, David Keohane says the clear-headed thing: capital controls obviously “make a mockery of the idea of a currency union”.

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 “accompanied 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 dollar”. Those things aren’t happening in Cyprus and won’t be.

Paul Krugman thinks the only way forward for Cyprus is a euro exit. Unfortunately for its citizens and economy, he doesn’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 today’s links:

EU Mess
Cyprus’s economy could shrink by as much as 20% from 2013-2015 – Institute for International Finance
Greece’s growth forecasts are again looking too rosy – FT Alphaville

Real Talk
Why a country is not a household: “The fed is much better off when it is short on cash” – Helaine Olen

Investigations
At least eight federal agencies are investigating JP Morgan – DealBook

Wonks
How the London Whale trade could have been stopped: Liquidity provisions – Rhymes With Cars & Girls
Global banking’s post-crisis legal tab will soon surpass $100 billion – WSJ

Talking Your Book
High-speed trading totally fine, says Columbia researcher financed by high-speed trading firm – HuffPo

Long Reads
“What are foundations for?” – Rob Reich

Tough Choices
Faster smartphones, or better battery life? – Farhad Manjoo

For the Record
Wells Fargo: The Harlem Shake is inconsistent with our image – Channel 11, Atlanta

Fiscally Speaking
Gay marriage could save the Federal government $450 million a year – Josh Barro

Says Science
Organic food extends the lifespan and fertility of the fruit flies – Atlantic

Negative Indicators
Companies that favor bullish analysts on earnings calls are more likely to restate earnings – WSJ

Servicey
“Syncing to paper is no more complicated than it sounds” – Robert Grerner

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