THE PUBLIC should not rush to change their Cyprus pounds to euros right now for fear that will lose out when the final rate is fixed by the EU in July, Central Bank official George Syrichas said yesterday.
Answering questions related to the dilemma among those who may have loans, deposits or even chunks of cash in Cyprus pounds, Syrichas said it would be wise to consider the pros and the cons before acting.
The central parity rate at which the Cyprus pound is linked to the euro makes one pound worth 1.71 euros. The rate fluctuates within a fixed band on either side of 1.71, which means it can drop to 1.67 euros or increase to1.75 but no further on either side.
Syrichas said he did not foresee any major changes in the parity of the Cyprus pound with the euro when the fixed rate was implemented.
He advised people to remember that if they converted to the euro before fixing occurs in July, how much they got would depend on which exchange rate the bank would use, minus a conversion charge.
From January 1, all accounts will be automatically converted to the euro free of charge, and those exchanging cash will not be charged by the banks to exchange their pounds for euros for a period of six months.
After that, if people still have Cyprus pounds they want to exchange, they can go to the Central Bank, which will accept to exchange coins and notes for free for two years and notes for ten years.
Converting now “is not going to give great benefits in my opinion,” Syrichas said.
“It’s also not a fact that we will join at central parity [1.71]. This will be decided in July by the European Council.”
Syrichas also spoke of the public’s fear of rising prices, but said much of the problem was due entirely to perception.
“In Greece, a haircut was 2,000 drachmas and it went to 8 euros, so it was easy to say 9 euros,” he said. “At the time in Greece, no one cared about the small change [because they were used to notes].”
He said that due to this Greeks would mistakenly tip with euro notes, the smallest of which was five euros, which translated into a lot of drachmas.
“In our case, the Cyprus pound has a higher value so if you see a car for £10,000, in euros that will be 17,000 euros, so already the price rings quite high, so there may be no incentive to push prices higher,” he said.
“Some conditions are just not conducive to rounding up. There is an effort by the government to convince people to round down, but the best thing to fight it is to have an informed customer.”
Finance Ministry adviser Zinon Kontolemis said there would probably be some challenges in Cyprus on this issue, especially with small businesses. He cited parking charges as an example.
Parking costing £1 would convert to 1.7 euros, he said, so there was a danger that this would be rounded up to 2 euros, a substantial increase; but he was optimistic that there would be at least some competitors that might only charge 1.5 euros.
Speaking of the experience of other countries, Kontolemis said: “What you have to realise is that where there were increases that were not justified, demand fell and price levels adjusted by themselves. If you are concerned about your place in the market you are not going to put up prices. Consumers should vote with their feet. If people try to make a short-term profit, eventually they will lose.”
