CURRENCY

CURRENCY

Cyprus currency is based on the decimal system and one Cyprus pound (C ) is divided into 100 cent (c). There are banknotes in the following denominations: 50c, CP1, CP5, CP10 and CP20.

Until 1972, the Cyprus pound was equivalent to one pound Sterling, but after this date the value of the Cyprus pound was fixed, by agreement with the IMF at 2.13281 grams of gold. Later, in 1973 the value of the Cyprus pound was pegged to the average value of a basket of currencies representing the currencies of the principal trading partners of Cyprus. On June 19, 1992, the Cyprus pound was linked to the European Currency Unit (ECU). The central rate was set at 1.7086 ECUs per Cyprus pound and the margin within which the Cyprus pound is allowed to fluctuate was fixed at 2.25 per cent above or below the central rate. This implies that the upper and lower limits of the band are 1.7470 ECUs and 1.6702 ECUs for one Cyprus pound, respectively. In September 1993, the average rate of exchange of the Cyprus pound was CP1=US Dollars 2.0079.

EXCHANGE CONTROL

The implementation of policy on exchange control rests with the Minister of Finance. The Exchange Control Law is administered by the Central Bank of Cyprus.

In practice most current transactions are handled by the commercial banks which are vested with the necessary powers. There are practically no restrictions for current payments in foreign exchange. Payments of a capital nature require the prior approval of the Central Bank.

Investments in Cyprus and transactions of a capital nature by non-residents also require the prior approval of the Central Bank.

Non-residents and offshore companies are allowed to maintain foreign currency and external accounts in Cyprus pounds. These accounts are operated freely without any restrictions on their convertibility.

Cypriot repatriates and Cypriots temporarily working abroad are permitted to maintain foreign currency and external accounts. Also, foreign currency accounts may be maintained by resident companies engaged with the manufacture and export of products and by Cypriot companies or individuals engaged with transit or triangular trade and by hotel businesses with loans in foreign currency.

BANKS

The Central Bank of Cyprus, was established in 1963. The Bank regulates the supply of money and credit, manages the international reserves of the Republic, acts as banker and financial agent of the Government, supervises the operation of banks in Cyprus and administers the Exchange Control Law.

Commercial banks are the major source of funds for working capital and for capital investment for enterprises. There are seven commercial banks now operating in Cyprus. Four of them are locally incorporated. These are: Bank of Cyprus Ltd, the Cyprus Popular Bank Ltd, Hellenic Bank Ltd and Lombard NatWest Bank Ltd. Foreign commercial banks operating branches in Cyprus are: Barclays Bank PLC, National Bank of Greece SA and Arab Bank Ltd. The Commercial Bank of Greece SA was also granted a licence in September 1992 to operate branches in Cyprus and is expected to start operations in the near future. In addition to these, the Cooperative Central Bank Ltd, provides finance to co- operative societies, with main emphasis on the agricultural sector. This bank accepts deposits and gives loans to its members which are principally the local co-operative credit societies. It is also an authorised dealer in foreign currency. The Cyprus Development Bank Ltd, a Government controlled institution, provides assistance for economic development by providing finance to the private sector, with emphasis on industry and tourism, but does not accept deposits from the public. The Bank usually backs up the financing of projects with technical assistance, planning and management. The Mortgage Bank of Cyprus Ltd, accepts deposits from the public and provides medium and long-term financing for housing, real estate development, tourist and industrial projects, etc. The Housing Finance Corporation, a Government institution, accepts deposits and provides long-term loan facilities for housing, mainly to low and middle-income households. Yialousa Savings Bank, a designated financial institution, accepts deposits and provides loan facilities and other banking services but is not an authorized dealer in foreign exchange.

In addition to these financial institutions, there are a number of hire-purchase finance companies such as the Bank of Cyprus Finance Corporation, the Cyprus Popular Finance Ltd, Hellenic Bank (Finance) Ltd, Lombard NatWest Ltd and Templar Finance Co. Ltd. The interest rate on any debt or obligation is subject to a maximum legal ceiling of 9% p.a.