Two years after becoming the first EU country to utilize capital controls to stem its financial crisis, Cyprus is removing remaining monetary restrictions. At the time, the capital controls sent the country’s economic future into a question mark, as foreign investors monitored the viability of doing business in Cyprus and risks involved. However, despite expectations of doom and the exiting of foreign firms from being headquartered on the Island, Cyprus has proved to be quite resilient, with ‘business as normal’ taking place after the initial difficult months.
Announcing the removal of remaining capital controls in a press conference, Cyprus President Nicos Anastasiades stated last Friday that “The lifting of the last restrictions marks the final restoration of confidence in our banking system”.
Getting removed today are caps on monetary transfers out of the country. Until today, individual Cyprus bank account holders were limited to transferring up to €20,000 to foreign banks, as well as a €10,000 limit imposed on travelers for removing cash from the country. At the time of the initiation of the capital controls, the most controversial was the freezing of deposits. At Laiki Bank, which was taken over by the government, deposits over €100,000 were seized.
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The lifting of the last restrictions marks the final restoration of confidence in our banking system – Cyprus President, Nicos Anastasiades
Among online brokers in the forex and binary options industry, many smaller firms were affected by funds seizure. However, the overall effect on the trading industry was limited due to larger firms having held the vast majority of their funds in other European countries such as the UK, Germany, and Switzerland, to satisfy capital requirements for funds to be held with Tier 1 banks. Nonetheless, the unease in Cyprus did help Malta gain momentum as an alternative for establishing EU domiciled online businesses.
The 2013 financial crisis culminated in Cyprus receiving a €10 billion bailout from the EU. Since then, the country has worked to disconnect its economy from Greece, of which Cypriot banks had been investors in real estate projects and fixed income assets that had become devalued during Greece’s ongoing financial crisis. The current decision to remove capital controls contrasts that of Greece, which continues to be tangled in restructuring its foreign debt and economy, with many forecasting a Grexit from the EU to be imminent.