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A roadmap for lifting Cyprus’s capital controls

Elias Neocleous
On August 8 the Cyprus Government published a roadmap for the lifting of restrictions that were imposed on banking operations in March 2013, and which apply to funds in the domestic banking system at the time of the bail-in. Funds remitted to Cyprus from abroad after March 27 2013 are exempt from the restrictions. The government is committed to restoring the free movement of capital as soon as conditions allow, and indeed a number of relaxations of the controls have already taken place.

The roadmap reflects the strategy agreed between the Ministry of Finance, the Central Bank of Cyprus and the troika of international lenders, namely that controls should remain in place only for as long as is strictly necessary, and should be gradually removed through prudent incremental steps, so as to safeguard financial stability.

The relaxations are intended to take place in two phases. The first phase will see the abolition of restrictions on domestic transactions such as cash withdrawals, and the second will comprise the removal of restrictions on cross-border capital movements such as the transfer of funds overseas.

The roadmap links the proposed easing of controls to specified milestones related to the recapitalisation and restructuring of the Cyprus banking sector, on the basis that the rehabilitation of the banking sector is essential in rebuilding depositors' confidence in the banking system and promoting economic recovery.

Regard will be had at each stage to the prevailing level of confidence in the banking system, to indicators of financial stability and to the liquidity situation of credit institutions, with the overall objective of removing the restrictions as quickly as conditions permit. The publication of the roadmap is a welcome confirmation that the Cyprus authorities are committed to the earliest possible return to normal banking conditions.

Elias Neocleous

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