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.
