How The Chinese Breach China's Capital Controls

This is a fascinating explainer on how China's rich circumvent capital controls to buy real estate abroad. https://t.co/hYRwjT9MVe

— Joseph Weisenthal (@TheStalwart) November 3, 2015

An interesting case study in avoidance techniques!

Greek Bank Deposit Bail Ins Coming In 2016

Hundreds of Bitcoin ATMs to be installed in Greece: Report http://t.co/hGrEnnrMfl pic.twitter.com/6W4BzrFFBL

— Kathimerini English (@ekathimerini) August 19, 2015

As Greek bank depositors work out where to hide their cash, before their deposits are "bailed in" next year, a solution of sorts is being worked on.

Bitcoin ATMs are being installed in Greece.

This is marked improvement on the current barter system being used by many to get around the capital controls, given that cheese is not really a terribly easy "currency" to convert!

Greek Capital Controls To Continue For Months

Reuters reports, not unsurprisingly, that Greek capital controls are going to remain in place for months until Greece is bailed out again.

The ongoing capital controls are strangling the economy and thus increasing the amount that Greece will need as a bailout. The banks alone will require Euro25BN at the very least to be recapitalised.

I wonder if anyone seriously believes that a third bailout, given the amount and restructuring required, will actually ever come to fruition?

Greek Banks Reopen

Greek banks have reopened today, with restricted services and capital controls still firmly in place.

The withdrawal limit of €60 per account per day has been replaced with a weekly limit of €420. 

 

This change  is designed to encourage people to withdraw their maximum weekly allowance today, thus giving the semblance of "normality" during the rest of the week (ie large queues today, and very few for the rest of the week).

Greece To Be Isolated

It seems that plans are afoot within the eurozone to isolate Greece from the eurozone financial system, to temporarily close the banks and to implement capital controls.

The likelihood of a Grexit is now being recognised even by the likes of Hollande.

Details as per Suddeutsche Zeitung.

Greece Warns Holidaymakers To Take Cash

Despite the recent rearrangement of the deckchairs on the sinking Trireme, wrt the sidelining of Varoufakis, Greece is still very much on the precipice.

Municipalities have refused to comply with the central government's smash and grab raid on local cash reserves, and have demanded to know what the cash will be used for and whether Syriza will be honouring its election pledges.

Faced with the reality of capital controls and bank runs, the Greek tourist board in London has advised holidaymakers going to Greece to take euros in notes and coins in case then ATMs are switched off (which seems very likely in the not too distant future).

The Foreign & Commonwealth Office has weighed in, and said that travellers should take "enough money to cover emergencies and any unexpected delays".

It is going to be long hot summer in Athens this year!

Greece Teeters on The Edge

Today Greece has to acquire the sign off of its creditors on its financial reforms, if it wishes to have the four month "breathing space" agreed to on Friday.

Irrespective of whether it obtains a sign off, Greece is on the verge of financial collapse and will, most likely, have to impose capital controls.

ICYMI: Greek bank deposit outflows last week ~€3B vs ~€2B week before, at which rate 8 weeks collateral left vs 14 a week ago -JP Morgan

— Jamie McGeever (@ReutersJamie) February 22, 2015

ICYMI: Greek bank deposit outflow this year now around €25B, reckons JP Morgan. Estimates are up to and include last week, so pre-agreement.

— Jamie McGeever (@ReutersJamie) February 22, 2015

Greek Bank Holiday This Monday

!! RT @LorcanRK Bank holiday in Greece on Monday.

— Chris Adams (@chrisadamsmkts) February 20, 2015

Fortunately for Greece, in view of its imminent exit from the Eurozone, it would appear that it has a bank holiday this Monday.

This should give the government enough time to impose capital controls and cash limits on withdrawals from atms etc, without utter chaos ensuing.

Putin Issues SOS

In a sign that the Russian economy is in dire straits, President Putin has offered an amnesty on capital returning to Russia.

Putin calls for an "amnesty" on capital returning to Russia, meaning if people repatriate their money, they won't face tax/legal questions.
— Paul Sonne (@PaulSonne) December 4, 2014

This is all very well. However, if people were to heed the call to return their capital they would never be able to get it out of the country again.

Russian Capital Controls and Macho Interest Rates Policy

Unsurprisingly, since the Crimea crisis erupted, capital flight from Russia has increased and may reach around $70BN over Q1 of this year.

Bartosz Pawlowski from BNP Paribas is quoted by the Telegraph:

“It is shocking, markets have been extremely complacent, fooling themselves that Russia is invulnerable because it has almost half a trillion in foreign reserves. But reserves can become almost irrelevant in this sort of crisis.”

There is now a risk of capital controls being implemented, as per Lars Christensen from Danske Bank:

“Capital controls are a serious risk, and should not be discounted. Whatever now happens, there has been permanent damage to the Russian economy because investors are not going to forget this lightly.” 

Given that markets are driven by greed, fear and raw emotion, the very fact that capital controls have been flagged as a risk will now be the catalyst for ever larger movements of capital out of Russia. Thus the prediction will become a self fulfilling prophecy.

Additionally, as I noted in January, Russia is using interest rates to prop up the Rouble.This outdated macho policy of currency support has the effect of strangling the economy:

"A macho defence of one's currency is all very well in the short term, however in the medium to long term it will achieve nothing (as Britain's disastrous flirtation with the ERM in the 1990's showed). At some stage Russia will be forced to allow the rouble to float, or else face a recession caused by an excessively tight monetary policy.

Turkey’s “shock and awe” doubling of interest rates on Tuesday has failed to restore confidence in the lira, it too will have to allow the lira to go where the markets wish.

 

Suffice to say Russia, given its rigid mindset and macho self belief, will not in the near future allow the rouble to float. Instead it will continue to tighten monetary policy, and will impose capital controls to prevent currency flight.

 

This in turn will prompt other countries in East Europe to do the same, resulting in a general stagnation of the world economy as the flow of free moving capital dries up and people's confidence in the banking system is eroded."

Russia will learn, to its cost, that you cannot buck the market!