This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Cyprus Capital Control: The Template for Leaving Euro

NEW YORK ( TheStreet) -- I could never have expected Cyprus could be the birthplace for so many very creative, world-changing ideas and bold, history-making experiments. Right after the Dijsselbloem Template for solving banking crisis the fair and just way, which was announced, promptly retracted, and consequently firmly stuck Monday, now we have an unprecedented capital control within a currency zone, for example, as reported by Reuters.

This is not a surprise after the initial shock of attempted deposit tax. But how this sheds light on the future path of eurozone makes it even more significant.

To summarize, the capital control measures mean flow of money out of Cyprus will be severely impaired, for (supposedly) seven days, but nobody expects it to end so soon.

What happens to the value of currency in a region where only inflow is allowed? It drops, due to sheer supply and demand imbalance even if not considering the inevitable risk aversion and panic. What makes this unprecedented and intriguing is that the currency is nominally the same inside and outside, the euro.

In other words, the euro will be worth less inside Cyprus than outside, quite possibly by a lot, depending on the success of enforcement (the more successful, the bigger the disparity) and degree of panic.

As the capital control is extended, inevitably, and the disparity between the Cypruro and the euro stabilizes, hopefully, it's only logical to give the Cypruro a proper new name, like, I don't know, Cypriot lira has a nice ring to it dontchathink?

This is too predictable to be exciting. Cyprus is lost cause. What's slightly more exciting is to speculate how this could be the template for the proper PIIGS and ultimate unwinding of the whole euro experiment. An awe-inspiring experiment it has been, a testament to the undying audacity of hope deeply embedded in humanity. We came. We tried. We left.

I did not expect the solution to come from Cyprus. It makes perfect sense, though, as the relative insignificance -- not to discount the enormous hardship and anxiety Cypriot people have been suffering over the past two weeks, and will continue to suffer -- of the problem compared to those presented by the infamous PIIGS (Portugal, Italy, Ireland, Greece and Spain). This makes it a better guinea pig for technocrats and politicians in various alphabetic soups of the eurozone institutions and foreign countries to try out a few ideas. If it doesn't work, at least they won't be kicked out of the office.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
GLD $123.65 0.00%
FXE $111.84 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs