Merryn's Blog

Hoard cash and get ready for capital controls

Greece has imposed a charge on cash withdrawals. This is just the first step on the road to full capital controls, says Merryn Somerset Webb

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We've written several times before about our worries that part of the end game of the financial crisis will be capital controls across the developed world. That worry isn't going away.

Yesterday, it emerged that Greece is hoping to prevent what little money there is left in its banking system from fleeing by putting a charge on cashpoint users: some €28bn has been withdrawn from Greek banks since the run up to the February election that put Syriza in government.

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The idea here (assuming Greece gets ECB approval for the scheme) is to charge €1 for every €1,000 withdrawn in cash from the banks. Yes, if you want your money in Greece you are now going to have to pay for it.

This is fascinating stuff I wrote earlier in the week that it might not be long before physical cash was worth more than cash in the bank. In Greece, once this measure is implemented, that will be the case. But that's not the end of the matter.

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Clearly, this won't work. €1 on €1,000 isn't anywhere near enough to stop the few nervous people who haven't done it already taking all the money they can out of the bank. So what next?

According to one official quoted yesterday, this tax on physical cash is just part of a "grab bag" of measures the state intends to use if "things get tough." Right now, there is discussion of stopping all bank transfers over €1m.

But there is no doubt in our minds that the grab bag in question contains full capital controls for Greece.

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