Possible consequences on the domestic and global economies

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Question: Post an approximately 300-word response to the suggested discussion question. There are a number of ways to approach this assignment: consider the reading in relation to its historical or theoretical context; write about an aspect of the week's reading that you don't understand, or something that jars you; formulate an insightful question or two about the reading and then attempt to answer your own questions; or respond to another student's post, building upon it, disagreeing with it, or re-thinking it. In any case, strive for thoughtfulness and nuance.

Suggestion Discussion Question: Capital control measures have been temporarily imposed in Cyprus since March 27, 2013, in light of the nation's dire financial circumstances, following nearly two weeks of bank 'holidays.' They came as the country's government moved to enforce the controversial conditions of a €10-billion bank bailout from the eurozone and the International Monetary Fund.

Following massive capital flows on April 11 from banks to other financial institutions and depositors rushing to split up their accounts in order to avoid the forthcoming levies on large holdings, Cyprus mandated that only payments of up to €300,000 are allowed, and that bank transfers of that size are prohibited. Restrictions on cross-bank transfers have been imposed, limiting them to €2,000 for individuals and €10,000 for legal entities. Also, these transfers may now only be made once a month. Furthermore, the ministry stipulated that bank clients may not open new accounts in other financial institutions. Cross-border transfers are also prohibited, except for paying wages to employees of foreign companies and covering education costs. In addition, customers are only allowed to withdraw €300 a day from ATMs. Those going abroad can take only €2,000 in cash with them, and may only spend up to €5,000 abroad in debit card payments.

Please comment on the appropriateness and effectiveness of enforcing capital control restrictions, and on the possible consequences on the domestic and global economies. Explain your opinions and provide supporting evidence.

Reference no: EM132047001

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