Mish points to the significance of capital controls as part of the latest plan to prevent financial collapse in Cyprus. He points to a Jeremy Warner piece about how capital controls effectively cause a split in the Euro.
Yet the point is that if capital controls are introduced, it basically makes Cypriot euros into a national currency, rather than part of wider monetary union. The capital controls will severely limit your ability to get your euros out of Cyprus, rending them essentially worthless in the wider eurozone. It would be a bit like telling Scots they can't spend their UK pounds in England.
The cash economy in Cyprus will grow in size. Plus, exporters will start accepting their payments in banks outside of Cyprus. Want to buy Cypriot olive oil? Pay in London or the Cayman Islands. Discount for paying for your hotel room in advance at an online site that processes the credit card transaction somewhere else.
Cyprus businesses should start reconfiguring to do more of their transactions abroad. Also, businesses in Italy, Spain, and Greece should start doing the same, albeit at a more leisurely rate.
|Share |||By Randall Parker at 2013 March 23 08:35 PM|