Thus far, and we acknowledge that the situation can change, we see no sign that payment of imports is being adjusted for the so-called Cypriot euro. That is to say, despite the polemics, there is not sign at this juncture that the Cyprus euro is being treated differently than euro in the other EMU countries.
We note reports that suggest there was some capital outflows from Cyprus over the past ten days, just not out banks. There were numerous exemptions granted to businesses, and for the imports of medicine, for example. Those euros were also inseparable from other euros in the system.
It is possible that the longer the capital controls are in place, the more likely some divergence will take place, as investors get more anxious and are willing to sell their claims for less in order to get access to their money quicker. The government currently suggests the controls will be reviewed after seven days. We suspect that a week from now, that capital controls on some banks may be lifted, though the logistic and administrative challenges at both Bank of Cyprus and Laiki Bank (Cyprus Popular Bank) may mean that those capital controls can persist longer.
By introducing some monthly and quarterly limits, for students studying abroad, for example, or cash transfers for people traveling out of the country, clearly lends itself to the idea that all capital controls will not be lifted in a week’s time, or even two weeks.
Nevertheless, our point remains valid that the question of one or two euros is not a theoretical question but a practical one. And as of now there is only one euro.