Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

CYPRUS

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of January 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: January 9, 1991.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)On January 9, 2007, the authorities notified the IMF that Cyprus maintains restrictive measures against the following related to the freezing of funds and economic resources in accordance with the UN Security Council resolutions and EU regulations, solely for the preservation of national or international security: (1) President Lukashenko and certain officials of Belarus; (2) certain persons indicted by the International Criminal Tribunal for the Former Yugoslavia; (3) the Democratic Republic of the Congo; (4) Côte d’Ivoire; (5) Croatia; (6) Iraq; (7) the Democratic People’s Republic of Korea; (8) Liberia; (9) financing Burmese state-owned companies (financial loans or credit, acquisition or extension of participation in such companies, or acquisition of shares and securities in Myanmar); (10) Sierra Leone; (11) Rwanda; (12) the former Republic of Serbia and Montenegro; (13) Somalia; (14) Sudan; (15) persons and entities associated with Osama bin Laden, Al-Qaida, the Taliban, and terrorist organizations; (16) Uzbekistan; and (17) Zimbabwe.
Other security restrictionsPursuant to UN Security Council resolutions, restrictions apply against the Islamic Republic of Iran.
References to legal instruments and hyperlinksRelevant EU regulations; http://eur-lex.europa.eu/en/index.htm.
Exchange Arrangement
CurrencyThe currency of Cyprus is the Cyprus pound.
Exchange rate structureUnitary.
Classification
Pegged exchange rate within horizontal bandsOn May 2, 2005, Cyprus adopted the ERM II. The central rate of the pound vis-à-vis the euro is £C 0.585274 per €1, with bands of ±15%. In practice, the Cyprus pound has fluctuated within the narrower, unofficial band of ±2.25%. Subject to certain restrictions, including a limit on spreads between buying and selling rates, ADs are free to determine and quote their own buying and selling rates. The Central Bank of Cyprus (CBC) monitors foreign exchange rates and may intervene to safeguard the smooth functioning of the market and the stability of the currency. The CBC is also responsible for organizing the daily fixing session with the commercial banks, at which the official foreign exchange rates (“fixing exchange rates”) against the Cyprus pound are determined.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketADs may trade in the forward market at rates freely negotiated with their customers.
References to legal instruments and hyperlinkswww.centralbank.gov.cy/nqcontent.cfm?a_id=4475.
Arrangements for Payments and Receipts
Prescription of currency requirementsYes.
Payments arrangements
Regional arrangementsCyprus is a member of the EU.
Administration of controlNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Natural and legal persons, whether resident or nonresident, are free to purchase or sell gold (coins and/or bullion) for commercial or industrial purposes. If gold is not used for commercial or industrial purposes, one of the parties to the transaction (purchase or sale) must be a credit institution or a subsidiary of a credit institution.
On domestic ownership and/or tradeYes.
On external tradeYes.
Controls on exports and imports of banknotesOn entering or leaving Cyprus, travelers must declare currency banknotes and gold whose value is equal to or in excess of £C 7,300 or €12,500, respectively, or the equivalent in any other currency. Failure to declare the banknotes or gold may be punishable by a fine.
References to legal instruments and hyperlinksCapital Movement Law, 2003; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksCapital Movement Law, 2003; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475; Prevention and Suppression of Money Laundering Activities Law, 1996 to 2004; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksCapital Movement Law, 2003; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475; Prevention and Suppression of Money Laundering Activities Law, 1996 to 2004; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresImports are governed by EU regulations, according to which most imports are free of licensing requirements and quantitative restrictions. A license is required for certain goods and for certain goods from non-EU countries.
Negative listYes.
Import taxes and/or tariffsThe EU Common Customs Tariff applies.
State import monopolyNo.
References to legal instruments and hyperlinksRelevant EU regulations; http://eur-lex.europa.eu/en/index.htm.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasIn accordance with EU regulations, exports of military equipment and goods that may be used for chemical or biological weapons, as well as nuclear-related products (including dual-use products), are subject to licensing for reasons of preserving international peace and security.
Export taxesNo.
References to legal instruments and hyperlinksDefense (Exports of Weapons Regulation) Orders, 2002 to 2004; Defense (Exports of Dual-Use Goods and Technology Regulation) Orders, 2002 to 2006; Relevant EU legislation; http://eur-lex.europa.eu/en/index.htm.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksCapital Movement Law, 2003; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksCapital Movement Law, 2003; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475.
Capital Transactions
Controls on capital transactionsCapital investments are generally free, in accordance with EU rules.
Repatriation requirementsNo.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsBanks may grant loans in foreign currencies with a maturity of up to 15 years to nonresidents, subject to the liquid asset requirements prescribed by the CBC for prudential reasons. Banks may also lend in local currency to nonresidents.
Financial credits
By residents to nonresidentsYes.
Controls on direct investment
Outward direct investmentDirect investments by banks abroad are subject to approval by the CBC.
Inward direct investmentInward direct investment from EU member countries is unrestricted. Direct investment from non-EU countries is also free from restrictions in most sectors of economic activity. However, there are ceilings on the participation of non-EU natural or legal persons in enterprises engaged in the following activities: radio and television broadcasting, tertiary education institutions other than universities, construction, travel agencies, distribution of newspapers and magazines, and ownership of merchant ships and fishing vessels.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsThe acquisition of real estate in Cyprus by non-Cypriot EU nationals (natural or legal persons) is not subject to controls, and is effected under the same legal provisions that apply to Cypriots, except for the acquisition of secondary residences, which will remain subject to the district officer’s approval under the Immovable Property Acquisition (Aliens) Law for a five-year transitional period from the date of Cyprus EU membership. In accordance with the Immovable Property Acquisition (Aliens) Law, the acquisition of immovable property in Cyprus by non-Cypriots from non-EU countries is subject to the approval of the district officer (acquisition of immovable property by inheritance is not subject to this requirement). When the real estate concerned exceeds two donums (one donum = 1,338 square meters), approval is granted only in the following cases: (1) a primary or secondary residence not exceeding three donums, (2) professional or commercial premises, or (3) premises for industry sectors deemed beneficial to the Cypriot economy.
Controls on personal capital transactionsNo.
References to legal instruments and hyperlinksCapital Movement Law, 2003; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475; Banking Laws, 1997 to 2005; www.centralbank.gov.cy/nqcontent.cfm?a_id=2931; Immovable Property Acquisition (Aliens) Laws, 1996 to 2003; Radio and Television Stations Laws, 1998 to 2004; Institutions of Tertiary Educations Laws, 1996 to 2006; Registration and Control of Contractors of Constructions and Technical Projects Laws, 2001 to 2006; Tourism and Travel Offices and Tourist Guides Laws, 1995 to 2004; Press Laws, 1989 to 2002; Merchant Shipping (Registration of Ships, Sales, and Mortgages) Laws, 1963 to 2005; Fisheries Laws, Chapter 135, as amended.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadYes.
Maintenance of accounts abroadBanks may maintain accounts abroad, subject to the net open positions in foreign exchange as described below.
Lending to nonresidents (financial or commercial credits)Banks are allowed to grant loans in foreign currencies with a maturity of up to 15 years to nonresidents, subject to the liquid asset requirements prescribed by the CBC for prudential reasons. Banks are allowed also to lend in local currency to nonresidents.
Lending locally in foreign exchangeBanks may grant loans with a maximum maturity of 15 years to residents (subject to the liquid asset requirements prescribed by the CBC for prudential reasons).
Purchase of locally issued securities denominated in foreign exchangeThese are subject to liquid asset requirements prescribed for prudential reasons.
Differential treatment of deposit accounts in foreign exchangeThe prudential liquidity regulations applied to accounts in foreign currencies, held by either nonresidents or residents, are different from those applied to accounts in Cyprus pounds.
Reserve requirementsA minimum reserve requirement of 5% applies to deposits in Cyprus pounds. A minimum reserve requirement of 2% applies to deposits in foreign currency.
Liquid asset requirementsLiquid assets in foreign currencies equal to at least 75% of deposit liabilities in foreign currencies must be maintained. For deposits in Cyprus pounds, the liquidity positions of banks are monitored by the CBC for prudential purposes using a maturity mismatch approach. The maximum mismatch ratios allowed are (1)–10% of total deposits in the time band of “zero to 7 days,” and (2)–25% in the time band of “zero to 1 month.”
Investment regulations
Abroad by banksBanks may acquire assets abroad in accordance with the CBC directive establishing the framework within which banks may use the funds derived from foreign currency deposits from customers. Banks may also undertake direct investment abroad (e.g., establishment of a subsidiary or branch abroad), subject to the approval of the CBC.
In banks by nonresidentsThe acquisition of 10% or more of a bank’s share capital by any resident or nonresident person, either alone or with any associates, is subject to prior approval of the CBC in accordance with the Banking Law.
Open foreign exchange position limitsThe overall net open/uncovered overnight (intraday) position in all foreign currencies should not exceed 6% (8%) of the bank’s capital base. The net open/uncovered overnight (intraday) position in any one foreign currency with the exception of the euro, should not exceed 3% (5%) of the bank’s capital base. In the case of the euro, both the net open/uncovered overnight position and the net intraday position should not exceed 6% of the bank’s capital base.
Banks that do not engage in retail banking, and whose main business is the carrying out of investments, are allowed to maintain a net open position limit in all currencies of up to 30% of their capital base at the close of a business day, and up to 40% of their capital base during working hours. The limits that must be observed by the above category of banks, in any one currency for the overnight and intraday positions, are 15% and 25% of their capital base, respectively.
Provisions specific to institutional investorsInstitutional investors are subject to prudential rules.
Insurance companies
Currency-matching regulations on assets/liabilities compositionYes.
Pension fundsThe law on Establishment, Activities, and Supervision of Pension Funds, 2006 (L.146(I) (2006)), was enacted November 30, 2006. This law incorporates the provisions of EU Directive 2003/41/EC.
Investment firms and collective investment fundsYes.
References to legal instruments and hyperlinksCentral Bank of Cyprus Laws, 2002 and 2003; www.centralbank.gov.cy/nqcontent.cfm?a_id=4475; Banking Laws, 1997 to 2005; Directive on the Monitoring of Foreign Currency Exposures; www.centralbank.gov.cy/media/pdf/IBDRESB110A281205.pdf; Cooperative Societies Laws, 1985 to 2005; www.cssda.gov.cy/cssda/cssda.nsf/DMLlaw_gr/DMLlaw_gr?OpenDocument; Insurance Services and Related Matters Laws, 2002 to 2005; Provident Funds Laws, 1981 to 2005; Activities and Supervision of Pension Funds, 2006; Investment Firms Laws, 2002 to 2005; www.cysec.gov.cy/existinglawsen.aspx.
Changes during 2006
Provisions specific to the financial sector
Provisions specific to institutional investorsNovember 30. The law on Establishment, Activities, and Supervision of Pension Funds, 2006 (L.146(I)(2006)), was enacted.
Changes during 2007
Exchange measuresJanuary 9. The authorities informed the IMF of certain financial sanctions imposed against certain countries, individuals, and entities, in accordance with relevant UN Security Council resolutions and EU regulations.

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