Cash economy, run on banks
In the meantime, Cypriots have turned to cash for everyday transactions, with facilities such as electronic payments out of action.
“It’s already become quite clear that Cyprus has moved into a cash only economy,” said London School of Economics southern Europe specialist James Ker-Lindsay.
“You know, petrol stations are no longer taking credit cards, I think a lot of supermarkets and, meanwhile, you’ve got all sorts of businesses which obviously can’t conduct transactions anymore because they can’t use electronic banking, they can’t get money out of the island, they can’t get money in.”
Some banks are limiting the amount of cash depositors can withdraw from ATMs each day and Dr Lindsay says its clear most of the tiny nation’s financial institutions will collapse if a bailout is not forthcoming by the end of the weekend.
“In terms of the big banks there, we’ve already seen the viability of one of them now – it’s become clear it can’t possibly survive,” he said.
Nowhere in Cyprus accepts credit or debit cards anymore for fear of not being paid, it is CASH ONLY. Businesses have stopped functioning because they cannot pay employees OR pay for the stock they receive because the banks are closed.
If the banks remain closed, the economy will be destroyed and STOP COMPLETELY. Looting, robberies and theft are already on the rise.
If the banks open now, there will be a massive run on the bank, and the banks will FAIL loosing all of its deposits, also causing an economic crash.
“The key question is whether this can be an orderly restructuring of some sort which will protect depositors or whether it’s go down in flames and all the mess that goes with it.”
Dr Ker-Lindsay says, even if there is some bailout deal struck over the weekend, it may be difficult to restore the confidence of Cypriot depositors, many of whom are likely to try and pull their remaining cash out as soon as the banks reopen.
“I think that this is the big worry now, that a lot of depositors, not just foreign depositors but Cypriots themselves, will just simply say look, I just don’t have the confidence anymore in the Cyprus banks. I’m going to get my cash out of here,” Dr Ker-Lindsay added.
“Absolutely, I think the real fear is a run and okay, there are restrictions that can be imposed but you know, they’re very, very problematic and they bring all sorts of other problems with them.”
However, Dr Ker-Lindsay believes the European authorities will ultimately have to step in and do whatever it takes to save the Cypriot financial system and keep the tiny island in the euro.
“Having fought so hard for Greece, now for it all to come crashing down over Cyprus, I think they’re wedded to the euro as a political concept and so really have to find a way of saving Cyprus and keeping it in,” he concluded.
As it stands now,