ECONOMY

Cash to flow in if capital controls ease

Cash to flow in if capital controls ease

The implementation of plans to ease capital controls, already provisionally approved by the country’s creditors, will lead to the return of some 2-3 billion euros in the form of deposits to the Greek credit system, bank officials estimate.

Creditors on Monday gave the nod to proposals submitted by the Bank of Greece for the relaxation of restrictions to the flow of capital in the Greek banking sector. The BoG has now tabled an official application with the European Central Bank, which is expected to be approved tomorrow during a meeting of its executive council. If all goes as planned, this will be the first significant easing of the controls since they were imposed in late June 2015 in order to contain an outflow of deposits.

Senior banking officials argue that it is imperative that so-called “new money,” meaning any new deposits into the system, are exempted from the controls. Banks believe that this exception from the rule would immediately lead to an increase in deposits of around 2 to 3 billion euros from money that is already circulating in the market for everyday transactions but which enterprises avoid depositing in banks because of the restrictions that are in place.

However, bank officials agree that it will take a lot more time for any substantial moves to be made by depositors to bring back the entire amount of 30 billion euros that is estimated to be hidden in mattresses or safe deposit boxes. They note that this cash will only start returning to the system from early 2017 provided that confidence is strengthened, that there is a further easing of the controls by the end of 2016 and that there are strong indications of a turnaround in the economy.

Bank professionals view as vital the acceleration of the implementation of the agreed reforms, the timely completion of the second bailout review within October, and an agreement between the eurozone and the International Monetary Fund on the restoration of the sustainability of the Greek debt.

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