Cyprus Gradually Relinquishes Domestic Exchange Controls

by Lorys Charalambous, Tax-News.com, Nicosia

21 February 2002

The Cyprus Central Bank has announced that local residents will be able to open foreign currency accounts from March 1st, as part of the liberalisation process associated with EU entry. Initially there will be a CYP 20,000 limit on such accounts, in an effort, says the Bank, to 'protect locals from dubious products', presumably not meaning the euro.

Said Central Bank Governor Afxentis Afxentiou: "We shall see how the public is behaving and in the event that the process is orderly, then we shall most probably lift the limit higher even before the end of the year".

Apart from the CYP 20,000 limit, the Central Bank is also issuing guidelines on 'approved investment products', although it acknowledges that it has no obvious way of policing the guidelines. Afxentiou says that the guidelines have been introduced to protect the public from such scams as pyramid schemes, but they will also advise against such well-established features of the financial landscape as futures and options.

Under the guidelines the public has the right however to invest in stocks and bonds on any recognised stock exchange in the EU, in mutual funds covered by the UCITS directive, and in foreign insurance products.

The Central Bank wants to avoid the use of foreign currency accounts for consumer spending, but it is again not clear how this ban will be enforced. EU rules insist on complete freedom of capital and currency markets, and attempts to hold back the tide of liberalisation in a net-enabled world are likely to be as ineffective as they are unpopular.

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