Greece has closed its banks and imposed capital controls to prevent financial chaos after the breakdown of bailout talks with its international creditors, The Financial Times reports. The decision comes at the end of a weekend that brought Greece closer to “Grexit” – the potential exit from the Eurozone and perhaps the European Union (EU) itself – and confronted Europe with a serious crisis.
The banks in Greece and the Athene Stock Exchange will remain closed until at least July 6, the day after the referendum on the austerity measures demanded by the country’s creditors. In the meantime, cash withdrawals at ATMs will be limited to 60 euros ($66) and transfers abroad will be forbidden. Greece is the second Eurozone country, after Cyprus in 2013, to impose capital controls.
The move is evidently aimed at preventing panicked Greek investors and savers from taking their money out of the nation’s banks and moving it elsewhere. In the days before the predictable stall of the negotiations with Europe, many Greeks rushed to withdraw their money. The Financial Times reports that many more Greeks are trying to withdraw their money now, but they are turned away by security guards.
“In the coming days, what’s needed is patience and composure,” Greek Prime Minister Alexis Tsipras said on television. “The bank deposits of the Greek people are fully secure. The same applies to the payment of wages and pensions – they are also guaranteed.” He added that the European authorities, seeking to stifle the will of the Greek people, are to be blamed. “They will not succeed,” he said.
William Dudley, the president of the Reserve Bank of New York, said that Grexit risk was a “huge wild card.” He warned in an interview with the Financial Times that the financial market implications of a Greek exit from the euro could be graver than many investors seemed to believe, because it would set a “huge precedent” indicating that euro membership was reversible. “My personal view is if this goes badly the market reaction may be bigger than what we realize,” he said.
Even if Greece and the EU find a way to avoid Grexit, it seems likely that the introduction of capital controls will push people, not only wealthy investors but also ordinary people, to the conclusion that governments and banks couldn’t be trusted with their hard-earned savings. They may then start looking for alternative ways to store value, out of reach of predatory central banks.
When capital controls were introduced in Cyprus, Bitcoin came to the rescue, and many people took money out of their saving accounts at the first opportunity, and bought bitcoin instead. The recent rise in the exchange rate of bitcoin seems to indicate that the same is happening now as a consequence of the Greek crisis. Actually, there are indications that pessimist – or savvy – Greeks have been buying bitcoin for some time now.
One thing is certain – when people start to lose confidence in the ability of their government and central bank to ensure a healthy economy and a stable currency, they start looking for alternative ways to store value. Today, crypto-currencies are replacing gold and other traditional alternatives.
Another possibility, which would have been dismissed as science-fiction only one year ago but is beginning to appear more and more plausible, is that governments could tolerate – or even adopt – parallel currencies including crypto-currencies.
German Finance Minister Wolfgang Schaeuble said that Greece may need a parallel currency if talks with creditors fail, according to sources familiar with Schaeuble’s views. And Greece’s Finance Minister Yanis Varoufakis wrote a blog post in February proposing a similar IOU-based currency, which he dubbed Future Tax Coin (FT-Coin). Varoufakis is not impressed by bitcoin as a currency, but he is persuaded that its underlying technology could be put to effective use in troubled economies.