Euro back under threat as savers mull money transfers away from Cyprus

17 March 2013 17 March 2013

Bestloans

The euro currency is back under the spotlight this weekend after an emergency bank levy grab in Cyprus has local savers mulling over whether to transfer their money out of the island’s shores.

On Friday, the Cypriot government agreed to seize up to 10 percent of the savings from all Cypriot bank accounts and use the money to bailout the island’s crisis hit banking system. The move has sparked panic, alarm and protests in Cyprus over the weekend as crowds desperately tried to withdraw their money at cash machines. There are also possibilities that this latest drama could spill over to Greece in the coming days as both economies are closely interlinked and both share the euro as their currency.

The Euro – Money Transfer Restrictions

Restrictions have been imposed to stop individuals emptying their savings accounts or moving their money out of Cyprus following the bank levy deal made by the Cypriot government, which has the full backing of the EU and the IMF. Monday 18th March is a national bank holiday in Cyprus, so savers will have to wait until Tuesday until they can consider making a money transfer out of the country.

The levy on bank deposits will come into force on Tuesday 19th March. The emergency levy will be 9.9 percent for deposits over 100,000 euro, and 6.75 percent for lower sums. Depositors have been advised that they will receive bank equity as compensation.

The Cypriot government has also taken steps to prevent electronic international money transfers over this weekend, to stop attempts to avoid escaping paying the levy or bank tax.

Sharon Bowles MEP, who chairs the European Parliament’s economic and monetary affairs committee, said she was appalled by the Cyprus bailout deal. “This grabbing of ordinary depositors’ money is billed as a tax, so as to try and circumvent the EU’s deposit guarantee laws. It robs smaller investors of the protection they were promised. If this were a bank, they would be in court for mis-selling,” she commented.

Euro Back Under Threat?

So what does this mean for the euro which makes up for 17 of the EU state currencies?

Cyprus adopted the euro currency on 1st January 2008 and although the country makes up only 0.2 percent of the GDP of the EU, the worrying part of this latest “money grab” in many minds will be “is this the first of many?” or “which country could be next?”

This new deposit tax for Cyprus is likely to prove unpopular with the country’s 1 million citizens. It will also affect the many Russian non residents who hold €18 billion euros in Cyprus’s banks.

This could also have an effect on the wider market as uncertainty creeps back into the legitimacy of the shared euro zone currency. Many currency dealers could be on “sell mode” next week for the euro, but in this new world of ever changing fortunes, we will have to wait and see what comes up.

Bank v Non Bank Money Transfers

Private foreign exchange specialists can typically save individuals up to three percent of the value of their international money transfers, compared to mainstream banks. View the live chart below for an example with the main UK high street banks:

If you are considering a cross currency international money transfer and if you want to save money, then beat the banks (including the banks in Cyprus) choose Currencies Direct to transfer your funds overseas.

Currencies Direct is one of Europe’s leading non-bank providers of currency exchange and international payment services. As a minimum, if you do decide to take your money away from Cyprus, you can at least get back some of the percentage lost by being smart and avoiding a large commission fee and a poor exchange rate when you send your funds away. And yes, they can also send money from Cyprus back to Russia…

So, if you’re one of the people affected by the latest events in Cyprus, if you need to make a transfer then check out Currencies Direct services on their website click here