The rolling crisis in Cyprus should reach a crescendo this week. If the parliament votes yes on
some type of deposit confiscation, it would mean the people of Cyprus have
elected to go “all in” on the euro and link their fate with the fate of the
single currency.
When given a clear opportunity to leave the eurozone,
Cypriots will probably decide to stay rather than rebuild their banking
infrastructure from scratch.
With the latest maneuverings and after going full-circle with a range of
alternatives, it appears that European bailout terms could be met by a 20-25%
levy on deposits only in excess of the guaranteed 100,000 euros. Cypriot
Finance Minister Michael Sarris said yesterday that a deposit levy was
back on the table as a way to come up with the 5.8 billion euros needed by
the new March 25th deadline for the larger rescue amount to be approved.
Writing for SkyNews, Ed Conway described the raid on bank deposits as “a
step across the financial Rubicon.” Indeed, it has ramped up expectations as
to what is now within the range of options for other EMU member states.
Politely calling it a levy or deposit tax doesn’t alter the
fact that it still amounts to brazen theft. Others have called it legalized
bank robbery.
The Statist quote of the day goes to Naomi Fowler, Taxcast producer for Tax Justice Network, who said, “I
think Cyprus is a cautionary tale to citizens that their government’s adventures
in tax havenry will cost them dearly.” She
advocates for global penalties against the provision of financial privacy
which to this observer warps the very meaning of the word justice.
“Only put money in the banking system that you can afford to lose,” advises
financial commentator Max Keiser. This is no more true
than last weekend in Cyprus when bank depositors had electronic transfers blocked and were
initially told to prepare for a confiscatory levy of up to 9.9% of their
deposit balances across the board. The government then ordered banks to keep
ATMs stocked since cash and credit cards were the only remaining methods of
transacting. However, it is not clear how much longer the credit cards will
be functioning in the country.
With banks in Cyprus now scheduled to re-open on March 26th after eight days
of consecutive closure, this would make the Cypriot banking-system shutdown
tied with the U.S. (March 6-13th, 1933) for longest number of shutdown days,
following only first place Argentina (April 20-29th, 2002) at 10 days. Should
the crisis extend beyond eight days and the European Central Bank pulls the
liquidity it has been pumping into Cypriot banks, the ATMs may become
cashless.
“The future of the euro zone has been put on the line for a few billion
euros. Yet, the assumption of Cyprus not being a systemic risk rests on a
single expectation: that it stays in the euro zone,” according to Stephen Fidler
at The Wall Street Journal. “Should it exit, all bets are off.”
However, other countries should be sufficiently discouraged from taking that
route if they see live television images of a full-blown banking panic and an
economic collapse within an EU member nation.
For now, the general attitude among the troika appears to be let’s experiment
with Cyprus and if things go badly, it’s not such a long-term big deal
because Cyprus is too small to matter. That could prove to be an optimistic
fantasy.
With capital controls to prevent a mass exodus from Cyprus banks now fait
accompli regardless of the bailout decision, Jeremy Warner at the Telegraph
says that it is the end of the single
currency in all but name:
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. Monetary
union is many things, but above all it is about free movement of money and a
uniform value wherever it is spent. When these functions are disabled, then
you cease to be part of a single currency.
The era of free capital movement is behind us.
Capital controls are about government keeping your money within easy reach
should they ever want it. A decentralized and nonpolitical currency like Bitcoin starts to look attractive by providing a safer destination
for wary depositors, allowing them to store their money securely in a digital
account on their own computers, away from the big governments and
politicians’ reach. It is possible to purchase bitcoins
in Cyprus at LocalBitcoins.com.
“Money flows to where confidence exists” says Alan Safahi,
CEO of ZipZap, Inc., a global cash network with over 700,000 locations in the world. “As bitcoin gains more acceptance,
consumer confidence increases and more money will flow to bitcoins,
causing a continuous rise in price due to limited supply which then increases
consumer confidence even more,” adds Safahi.
As this trend continues, ZipZap, which processes
more purchases of bitcoin than any other cash network
stands to benefit tremendously from this trend. “The growth opportunity is
not limited to Europe. We are seeing a significant increase in volume in the
past few days from consumers in the U.S.,” says Safahi.
The emerging trend towards bitcoin as a flight to
safety seems to be accelerating despite the recent regulatory guidance
from FinCEN (Financial Crimes Enforcement Network).
As part of the Treasury Department, FinCEN’s
guidance on enforcement would extend traditional money laundering rules to
most types of virtual currencies, including bitcoin.
Although bitcoin proponents emphasize that a test
case has not emerged yet.
“It’s almost a badge of respect when the Treasury starts regulating you,” said James Rickards,
author of Currency Wars. “You must be doing something right.”
“Gold is a great way to preserve wealth, but it is hard to move around,”
added Rickards. “You do need some kind of
alternative and Bitcoin fits the bill. I’m not
surprised to see that happening.”
By
Jon Matonis
Forbes
Sunday, March 24, 2013
http://www.forbes.com/sites/jonmatonis/2013/03/24/cyprus-goes-cashless-the-hard-way/
