The Banking Executive Magazine - May 2021

Capital Control CYPRUS CASE STUDY Cyprus was the first Eurozone coun- try to apply capital controls, impos- ing limits on credit card transactions, daily withdrawals, money transfers abroad and the cashing of cheques. This capital control was intended to prevent a vast outflow of euros dur- ing the period of the financial crisis that hit the Eurozone. Key facts In 2013, Banks in Cyprus were shut down, and depositors had only lim- ited access to their cash. Depositors were queuing at ATMs in Cyprus try- ing to get their cash money as soon as they can. Capital controls meas- ures were imposed on banks in Cyprus in order to prevent bank run. The imposed capital controls were last resort measures undertaken by policy makers to prevent a financial collapse. Confidence in Cyprus banks has been negatively impacted by the financial crisis. Capital Control Measures taken Capital control measures undertaken in Cyprus included: • Depositors withdrawal limit of € 300 in cash per day • Transfers of more than € 5,000 re- quired permission from the central bank. • Overseas credit card transactions were limited to € 5,000 per month but unrestricted in Cyprus. • A ban on taking more than € 3,000 of bank notes out of the country per trip. • The government and Central Bank of Cyprus were exempt from the capital controls. • All savings accounts were run until their expiry date and no early with- drawals allowed. • No cheques could be cashed, al- though cheque deposits were al- lowed. • Importers were allowed to pay for goods only after showing support- ing documents, while students studying abroad were able to re- ceive only up to € 10,000 a term, and only if the money is transferred by their immediate family. The measures were applied to all ac- counts, regardless of the currency used. Security enforcement needed The capital controls, applied to all banks in Cyprus, required a big en- forcement effort, including extra checks at airports. Police were mon- itoring the situation at bank branches across Cyprus and armed guards were guarding the banks. In Nicosia, demonstrators were gathering at the presidential palace protesting against international lenders who are behind imposing these capital controls. Compliance with EU regulations The free flow of money is one of the four fundamental freedoms of the Eu- ropean Union. It can be restricted ISSUE 149 MAY 2021 the BANKING EXECUTIVE 9