Cyprus limits bank transactions

First eurozone country ever to apply capital controls.

New Statesman
Leiki Bank ATM in Nicosia. Credit: Getty Images.

Cyprus has imposed severe capital controls on all of its banks that include limitations on cash withdrawals, credit card transactions, money transfers abroad, and cashing of cheques to avoid a vast outflow of currency.

Banks in Cyprus will reopen today after an almost two-week shutdown.

As part of the curbs, depositors will be restricted to cash withdraw of less than €300, cheques will not be cashed, and money transfers over €5,000 would need a permission of the central bank. The Cypriot government and Central Bank of Cyprus will be exempted from the capital controls.

Importers and students studying abroad will be allowed to pay/receive.

Although the capital controls will expire after one week, but the government may continue the limitation, depending on the situation. However, some experts believe the capital controls could be subject to legal challenge.

Guntram Wolff, the deputy director of Bruegel, said: “In my view this one sentence means [the new capital control measures] are not a watertight case. It may fail in courts. If you really get the message out there to the market that we can do this and it’s perfectly legal, in my view it becomes very dangerous.”

Warning against severe capital controls, the Russian finance minister Anton Siluanov said that they could provoke additional problems and also affect Russia’s willingness to restructure the €2.5bn loan it gave Cyprus in 2011. “We will discuss [the loan] in the context of the decisions the parliament adopts [on capital controls],” Siluanov added.