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Europe's Newest Currency: The Nonconvertible Euro

“Today the Cypriot parliament will vote on capital controls allowing authorities to restrict noncash transactions, curtail check cashing, limit withdrawals and to even convert current accounts into fixed-term deposits when banks reopen on Tuesday... There have also been discussions over eurozone-enforced controls on Cyprus, including freezes on savings and a requirement that all bank transfers are approved by a central bank, Handelsblatt reported today.”
---today’s Telegraph

The Cyprus resolution that is being cobbled together this weekend would involve a haircut on uninsured deposits and banking sector consolidation in exchange for the troika’s recapitalization of what’s left of the banking system. This would permit the ECB to continue to fund the remaining Cypriot banks, allowing them to continue to function in euro without have to redenominate. Cyprus would not default on its government debt and would remain in the eurozone.

There would also presumably be a new austerity package for the government involving the usual “impossible” and “unthinkable” reforms. In theory, the government and legislature will capitulate completely to the troika’s entire list of demands.

This plan is supposed to put the Cypriot crisis to bed for the medium-term.