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Greek debt crisis: What are capital controls? Greek debt crisis: What are capital controls?
(about 1 hour later)
Savers in Greece are withdrawing money from their bank deposits at a furious rate, with some ATMs running out of higher denominations of euro notes.Savers in Greece are withdrawing money from their bank deposits at a furious rate, with some ATMs running out of higher denominations of euro notes.
The Greek government is under growing pressure to impose capital controls. It follows a decision by the European Central Bank to maintain the ceiling of emergency liquidity assistance (ELA) to Greek banks "at the level decided on Friday".The Greek government is under growing pressure to impose capital controls. It follows a decision by the European Central Bank to maintain the ceiling of emergency liquidity assistance (ELA) to Greek banks "at the level decided on Friday".
The BBC's economics editor Robert Peston says that could mean an exceptional bank holiday on Monday - pending the imposition of those capital controls.The BBC's economics editor Robert Peston says that could mean an exceptional bank holiday on Monday - pending the imposition of those capital controls.
He said: "Money has been pouring out, and Greek banks don't have that money in their vaults".
What are capital controls?What are capital controls?
Basically, a capital control is when the government tells you that you are no longer allowed to move your money around freely.Basically, a capital control is when the government tells you that you are no longer allowed to move your money around freely.
A government can use capital controls to order its banks to impose strict limits on daily withdrawals and overseas transfers of cash. It can also impose other measures such as limiting foreign exchange transactions.A government can use capital controls to order its banks to impose strict limits on daily withdrawals and overseas transfers of cash. It can also impose other measures such as limiting foreign exchange transactions.
In this case it would be to prevent euros flowing out of Greek banks - to overseas banks, into a different currency, or to be stashed under the mattress.In this case it would be to prevent euros flowing out of Greek banks - to overseas banks, into a different currency, or to be stashed under the mattress.
Until now, the Greek government had been signalling that it did not want to introduce such restrictions.Until now, the Greek government had been signalling that it did not want to introduce such restrictions.
However, if the ELA cash pipeline is frozen, and Greeks continue to withdraw their savings, the government would have little choice.However, if the ELA cash pipeline is frozen, and Greeks continue to withdraw their savings, the government would have little choice.
Has any other eurozone nation had to introduce capital controls?Has any other eurozone nation had to introduce capital controls?
Yes, capital controls were imposed on Cypriot banks in 2013.Yes, capital controls were imposed on Cypriot banks in 2013.
The government introduced limits on credit card transactions, daily cash withdrawals, and money transfers abroad.The government introduced limits on credit card transactions, daily cash withdrawals, and money transfers abroad.
Tight capital controls were put in place there after a banking crisis and a subsequent bailout deal with the EU and IMF.Tight capital controls were put in place there after a banking crisis and a subsequent bailout deal with the EU and IMF.
How would Greek capital controls work?How would Greek capital controls work?
Most controls allow people limited access to their bank account, in order to let them meet their daily needs and maintain a minimum level of activity in the economy.Most controls allow people limited access to their bank account, in order to let them meet their daily needs and maintain a minimum level of activity in the economy.
For example in Cyprus daily withdrawals were capped at €300 of cash per person per day.For example in Cyprus daily withdrawals were capped at €300 of cash per person per day.
Those travelling abroad could take no more than €1,000 out of the country, while payments and/or transfers outside Cyprus via debit and/or credit cards was permitted only up to €5,000 per month.Those travelling abroad could take no more than €1,000 out of the country, while payments and/or transfers outside Cyprus via debit and/or credit cards was permitted only up to €5,000 per month.
Businesses could carry out transactions up to just €5,000 per day, and a special committee was created to review commercial transactions between €5,000 and €200,000. That committee also had to approve all commercial transactions over €200,000 on a case-by-case basis.Businesses could carry out transactions up to just €5,000 per day, and a special committee was created to review commercial transactions between €5,000 and €200,000. That committee also had to approve all commercial transactions over €200,000 on a case-by-case basis.
And the cashing of cheques was banned.And the cashing of cheques was banned.
How long can capital controls remain in place?How long can capital controls remain in place?
The general assumption with capital controls is that once the economic dust has settled, the panic withdrawals will end, and the controls can be lifted again.The general assumption with capital controls is that once the economic dust has settled, the panic withdrawals will end, and the controls can be lifted again.
The longer they are in place however, the greater effect they have on an economy - a tightening on business transactions and withdrawals of deposits could in turn affect sectors such as retail sales and tourism, and the commercial activity and industry of a country as a whole.The longer they are in place however, the greater effect they have on an economy - a tightening on business transactions and withdrawals of deposits could in turn affect sectors such as retail sales and tourism, and the commercial activity and industry of a country as a whole.
In Cyprus controls remained in place for a long time - the last restrictions were only lifted in April 2015, after more than two years.In Cyprus controls remained in place for a long time - the last restrictions were only lifted in April 2015, after more than two years.
Are the controls legal?Are the controls legal?
All such moves fly in the face of the founding treaties of the European Union and the eurozone, which declare that money should be free to flow throughout the entire single currency area.All such moves fly in the face of the founding treaties of the European Union and the eurozone, which declare that money should be free to flow throughout the entire single currency area.
Indeed, one of the main reasons for European monetary union was to enable such free flows of money.Indeed, one of the main reasons for European monetary union was to enable such free flows of money.
Robert Peston says that if such flows are restricted by Greece, it would break the above regulations, and could be a step towards Greece leaving the eurozone.Robert Peston says that if such flows are restricted by Greece, it would break the above regulations, and could be a step towards Greece leaving the eurozone.
In Cyprus, the European Commission only allowed the introduction of the controls because it said there was significant risk "of complete destabilisation" of the financial sector.In Cyprus, the European Commission only allowed the introduction of the controls because it said there was significant risk "of complete destabilisation" of the financial sector.