Cyprus is imposing unprecedented controls on Cypriot bank depositors withdrawing or moving their money, as it prepares to reopen its banks Thursday.
Cypriot Finance Minister Michael Sarris says the controls are necessary to restore confidence in the island nation's banking system.
""We believe that some sort of capital controls that will moderate whatever outflows are bound to happen will restore confidence and they will be removed in a relatively short period of time in agreement with, that I say, the general rules of the eurozone and the European Union," said Sarris.
Cyprus said travelers leaving the Mediterranean island can take no more than $3,831 to other countries. The restriction comes after Cyprus, one of 17 eurozone nations, secured a $13 billion bailout from its international lenders. As part of the deal, Cyprus agreed to confiscate 40 percent or more from the biggest, uninsured accounts above $130,000 to help pay for the rescue.
One global economics expert, Nicolas Veron of the Peterson Institute for International Economics in Washington, told VOA the controls are the "very sad consequence of the terrible blunder" made by European policy makers earlier this month to tax all Cypriot bank accounts, not just the largest ones. The Cypriot parliament rejected that policy, but the government agreed to the tax on the biggest accounts.
Now, Veron says, the controls are necessary.
He said, “If you don’t impose capital controls, you are sure to have something like a bank run in Cyprus in a disorderly manner.”
Cyprus says the controls will initially be in place for a week, but Veron says he thinks it will be much longer, perhaps several months.
““I think the destruction of trust is with us, and it will be a long time before confidence can be restored in a way that is compatible with the lifting of capital controls,” said Veron.
Cyprus' banks have been closed for nearly two weeks, with depositors facing restrictions on the amounts they could withdraw from automated teller machines, to prevent a massive run on accounts. Cyprus said late Wednesday it is increasing the limit from $128 to $383. But the uncertainty of the bank closures has frustrated Cypriots, including Nicosia resident Andreas Antoniou.
You can't really move, people don't have any money on them to move around, they're scared, there's uncertainty, don't know if banks will open tomorrow or not," said Antoniou.
The head of Cyprus's biggest bank has been fired from his post. Bank of Cyprus chief executive Yiannis Kypri was dismissed by the nation's central bank, following the appointment of a special administrator for the lender. The bank's chairman submitted his resignation after the administrator was appointed, but the bank board rejected his request.
The Bank of Cyprus is being forced to restructure under terms of the rescue package Cyprus reached this week with its European neighbors, the European Central Bank and International Monetary Fund. The bank will absorb some of the assets of Cyprus's second-largest bank, Cyprus Popular, also known as Laiki, which is being shut down.
Cyprus is the fifth of the eurozone nations where billions of dollars in bailouts have been needed to ward off bankruptcy, following Greece, Portugal, Ireland and Spain.
Some information for this report was provided by AP and AFP.