FROM tomorrow when Cyprus becomes a full member of the EU, all foreign exchange controls will be lifted and people will be free to invest as much money as they like abroad, put their savings in any currency they choose, in any bank in the world, without needing approval from the Central Bank. There are some fears that, when the banks open on Monday, there might be a rush to sell Cyprus pounds, putting considerable downward pressure on the currency, but this is just speculation.
This speculation, however, was exacerbated by the misguided decision of the Central Bank Governor, Christodoulos Christodoulou, to issue an announcement describing “rumours about the imminent devaluation of the Cyprus pound” as “irresponsible and groundless”. He assured us that “the Cyprus pound was and remains strong”, citing recent studies by the IMF to prove his point. His announcement (an unheard of practice in most countries) defied belief, as it could have had the opposite of the desired effect if restrictions had not been in place. In advanced countries, such an announcement would have caused a battering of the currency, irrespective of prevailing economic conditions, which is why no central bank chief would ever dream of publicly scotching rumours about devaluation.
By publicly addressing the spectre of devaluation, Christodoulou was inadvertently giving validity to the rumours and fuelling, rather than preventing, speculation. Surely he should have known that the best way of dealing with rumours would have been to ignore them. As for his assurance that the Cyprus pound “remains strong”, it could only be interpreted negatively by the markets. The governor does not seem to have realised that when he is talking about the economy he needs to be extremely cautious because he can cause great damage. The economy is not like the Annan plan about which the Governor spoke with carefree abandon.
The Central Bank yesterday said it did not fear a run on the currency, but still advised banks to avoid any advertising, presumably to prevent people thinking about money issues and foreign currency. It is absurd even to suggest that the absence of bank advertising from the media would have any effect on people’s money decisions come Monday. And for how long will bank advertising be banned? By this logic, the next step would be to close down the banks in order to protect the currency.
It is a truly ludicrous way to prepare for EU accession and the lifting of exchange controls, indicating that the Central Bank is far from assured about handling the liberalisation of the currency market. The Governor’s moves have not inspired great confidence in business circles.
