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Cyprus: Trying to Avoid Chaos at Banks

Published: March 28, 2013; 11:11 · (Vindobona)

Today, Cyprus‘ banks are supposed to be opened after almost two weeks of closing. The citizens are called for calm and there are limits for drawing money. The currency rate was downgraded to Caa2 by Moody’s.

Cyprus: Trying to Avoid Chaos at Banks / Picture: © Bank of Cyprus

The Cyprian government wants nothing more but to avoid chaos, violence and cime when today, March 28, the banks will be opening again at noon (local time). Therefore, additional security personnel were hired. Until 6 pm bank clients can draw money from their accounts, however, with serious restrictions, as the Central Bank of Cyprus (CBC) and the Finance Ministry in Nicosia announced. Up to € 300 per person and per day is permitted to be withdrawn which is less than assumed. Standing orders to pay wages via online banking system are accepted so that employees can receive their salaries. Furthermore, restrictions in the capital flow are supposed to avoid an outflow of cash after the opening of banks. The agreements of the CBC plan limitations for cash transfers to foreign countries and additional requirements for the transaction of export business of real estate agents. So far, it has not been announced when these prohibitions will be set aside.

Spokesman of the Cyprian police, Andreas Angelides summons people to be particularly cautious when leaving the banking institutes after having received their money. Since March 16, the people in the Greek part of Cyprus were only able to supply themselves with money via cash machines. The reason behind these drastic measures was the agreement on a bail-out package in order to avoid a collapse of the banking system and state financials.

For the banks opening, the CBC received € 5bn in cash, according to a newspaper article. The daily newspaper Kathimerini reports the cash was transported with a heavily guarded convoy from Larnaka Airport to the Central Bank in Nicosia.

For the time being, cash transfers to foreign countries are limited to € 5,000. For amounts exeeding € 200,000, a special permit by the CBC is necessary. In the case of travel expenses a total of € 1,000 in cash is allowed. Time deposits must not be cancelled prematurely. This should avoid an outflow of capital in a large scale.

In the fear of Cyprus leaving the Eurozone, Moody’s has downgraded the currency rate for the country drastically. The country ceiling was rated from AAA down to Caa2, Moody’s announced on Wednesday in London. Under usual circumstances, all Eurozone countries are rated with AAA whereas Caa2 is one of the worst ratings by Moody’s. The standard country rating, which refers to the creditworthiness of a single country, is still at Caa3 with a negative outlook. Moody’s explained that the risk of Cyprus’s escape from the Eurozone was still high. The consequences of the restructuring of Cyprus‘ two biggest banks and the capital restrictions could increase the risk of an exit which could lead to a further downgrading.

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