Cypriots face draconian controls on how they spend their money
Cypriots are facing draconian controls over how they spend their money, use debit cards or access their savings for at least two months, it emerged yesterday.
Officials in Nicosia were scrambling to stop capital flight ahead of major losses being inflicted on depositors at the island's biggest bank.
The country faced new fears of a financial meltdown, as the chairman of the Bank of Cyprus, the country's biggest lender, resigned, while banks, which have been shut for 12 days, look set to stay closed until at least tomorrow.
Cypriot capital controls that are unprecedented in modern banking will include a tight weekly personal allowance for cash withdrawals, restrictions on moving euros outside Cyprus, new lower limits on credit or debit cards and a ban on cheques.
Additionally, fixed-term deposits will have to be held until maturity and the Cypriot central bank will have power to take any measure it sees fit to stop a run on financial institutions in the first attempt to stop all unauthorised capital movements in the era of 21st century electronic banking.
There will also be a ban on cashing cheques, according to Paul Mason, the economics editor of 'Newsnight'.
Michael Sarris, the Cypriot finance minister, admitted capital controls were "not a good idea" that threatened to strangle the economy, but insisted they were necessary after the eurozone demanded that banks in Cyprus are restructured as a condition for a e10bn bailout.
"We are facing an emergency. This is an unprecedented experience," he said, as he confirmed that depositors at the Bank of Cyprus with more than e100,000, could have at least 40pc of their funds forcibly converted into bank shares worth much less than the value of their savings.
Andreas Artemis, the chairman of the Bank of Cyprus, resigned yesterday, complaining that the Cypriot government had failed to tell him that it had appointed an administrator for his bank or that it had sold its branches in Greece on its behalf. Four directors also resigned, but in a statement the Bank of Cyprus said the resignations had not been accepted and "will only apply if not withdrawn within one week".
The capital restrictions pose a threat of economic strangulation in Cyprus and are expected to stay in force until a "memorandum of understanding", still to be agreed between the eurozone, International Monetary Fund and the island, comes into force.
EU sources said that the memorandum would not be ready for national approval until the third week of April at the earliest.
Fitch yesterday put Cyprus on rating watch negative, saying the banking crisis could damage the domestic economy and therefore public finances. (© Daily Telegraph, London)