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Κυριακή, 26 Ιουλίου 2015

Greek Capital Controls Lessons Learned



I consider this article a bit early to write. As time goes by there are more possibilities that are unfolding, and new things were are learning, so updates are likely.

The Greek Capital Control incident in late June caught us by surprise. We all knew that something would happen sometime, but not at that particular time.
And the truth is that things did not play out as expected.

In short, a daily withdraw limit per ATM card was instated, the well known by now 60 Euros one. Assuming one has the money to withdraw from a daily 60 will suit you fine in Greece since the minimum wage is about 20 euros.
The one different and unexpected thing was that electronic money to abroad was  blocked. Paypal soon put out a notice and credit card purchases from abroad were blocked too. And this was one area my plan failed cos I was expecting to use these means for vital items –including meds- purchase from abroad.
On the other hand reports say that prepaid cards and money in your Paypal wallet maintained function, up to exhaustion of course.
And those buying from abroad had friends send them foreign prepaid cards.

Strangely enough most forms of electronic transaction and wire transfers within the country were kept operating. Debit cards also worked fine and credit cards worked up to their particular limit. But not where the businesses declined their use.
So people started to use internet banking if they could. Businessmen with accounts in neighboring countries had access to much more liquidity,

The electronic transfer of money was taken as a measure to allow sufficient function of the monetary system and banking system.
Assuming that it may be the case again, do make a web-banking account. I was caught with a deactivate old one and it took me some days to reinstate it and catch up in the 60s game.
A trick most of us did was to wire transfer funds to empty accounts. Then we could withdraw a 60 from each every day. That will soon build you up a considerable sum, good enough for most medical emergencies too. Keep that in mind when you make your cash and liquidity plan.
Bitcoin is another option if that is of your liking, but remember, you’ve got to have invested beforehand.

The ATMs keep churning out 50s and 60s for four weeks now and that is courtesy of borrowing liquidity from the European Central Bank. I consider this a best case scenario cos we ain’t going to be that lucky again. The Grexit scenario is still being played, and then cash will drain Fast!

So there is something to be said with keeping some cash at home. At least a month’s worth. This was my case and with judicious use of other means and some cut-backs in expenses, I did not have to touch it.
But not all forms of savings were useful during this time. Some people keep a small part of their wealth in gold (British golden pounds) and with the banks closed there was no way to trade them back for cash.
The same happened with the people that kept cash in the safe deposit boxes. While a good idea to maintain the value of your money in a currency switchover (or even gain), the safe deposit box method turned out to be just frozen liquidity for the very first weeks. So people with quite a money safely guarded, were unable to access and use it. And that calls for some prior planning for all of us. During any form of capital control cash will be king. But what one can do in the cases where a lot of money has to be used soon like having a car breakdown, an accident or a serious sickness?

If you have the means for, set up a foreign bank account. This is what local businesses are doing these days. So that they operate outside the failed Greek banking system.

Things to Take Away.

1. Cash is King. If you can store it safely outside a bank I would maintain enough for –say- the expenses of a serious medical emergency.
2. Use ALL your options for money. Cash, Debit cards, Credit cards, Paypal Wallet, Foreign bank accounts, everything. Just do not put most your eggs in one basket. Distribute funds wisely, since some of these things will give.
3. Be fast to respond. Mass hysteria precipitates actions by the state, it is a self-fulfilling prophecy.
4. Set up an early warning system by monitoring bank liquidity. The thing is, banks are obliged to keep only about 10% of the deposits in cash. Monitor what the actual percentage is.

A Note on the Banks

A serious event will send people to the banks and the ATMs and there is not enough bank notes for everyone. Even if the bank borrows from banks from abroad, Liquidity (Capital) Controls will be enforced eventually (the case of Greece). This borrowed liquidity is a loan with the banks assets as a collateral. That is bonds, healthy loans to firms and individuals, and for the first time since the Cyprus incident, Deposits. If the situation is going for long and the banks do not recuperate they will either have to be financed (bailed-out) by the state budget, or there will be a depositors’ haircut (bail-in). Monitor this situation and act accordingly.

A Note on Businesses

While not my field, some observations should be mentioned.
The importing trade businesses took a hit, since they could not transfer money out of the country. The same goes for businesses that imported raw materials. And their clients have been asking to be paid in advance.
But even the exporting ones were influenced. While they were practically making money abroad they did face liquidity issues in country, as money transferred in were practically frozen for a while. These were the first ones to make foreign accounts, hadn’t done this already from the beginning of the crisis.

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