Why the UK is indeed different from Cyprus

Couldn’t happen to us, could it? After all, Britain is nothing like Cyprus. Cyprus is a small island, far from the “action”, with contented natives who prefer not to notice as more and more of their wealth is bought up by oligarchically rich foreigners. Our banks don’t cripple themselves with out-of-control lending to those natives, presumably on the back of all those foreign investments. Oh.

The more I analogised, the more the only substantial difference I could see between Cyprus and Britain was the source of my ancient envy: the sun shines there, while it rarely does here.

There is of course a difference. It\’s called the Bank of England.

We have our own central bank, a central bank that can print as much money as it needs to. And will do in fact. For one of the duties of a central bank is to act as lender of last resort. And it was that very threat, that the ECB would stop acting as lender of last resort to the Cypriot banking system, that precipitated the crisis.

As is often said, a country that prints its own currency cannot go bust…..not until they get to Zimbabwe levels of stupidity that is, where they didn\’t have the hard currency for the ink.

If Britain were in the eurozone and were subject to the ECB then yes, it might be something worth worrying about. Outside, no.

3 thoughts on “Why the UK is indeed different from Cyprus”

  1. Central banks can indeed print as much currency as is needed but long before you get to Zimbabwean levels of stupidity you can devalue the currency so much through printing that it amounts to being near bankruptcy (or certainly feels like bankruptcy).

    The one thing in Cypriots favour at the moment is that they can still pay for petrol, gas and imported goods in euros. If and when the Cypriot Pound returns, at an 80% devaluation to the euro, then the ability to print one’s own currency won’t be seen to be an unalloyed benefit.

  2. Not unalloyed Shinsei, but then the current alloy looks a bit tarnished.

    What is the wealth bought by foreign oligarchs? Property paid for at a price agreed by the owners? Bank accounts stuffed with cash? I don’t get these people.

  3. All that means Tim is that the same scenario plays out a bit differently. You can have all the devalued pounds you like whereas Cyprus makes do with fewer euros.

    And even if all their banks fell over it would not be long before (more) solvent continental banks were in there hastily setting up rebranded branches. I’d give it about 3 weeks.

    So, transfer deposit insurance liabilities to the ECB and try and get the European banking market less fragmented along national lines so a tits-up in Ministan doesn’t actually bring down all of Ministan’s banking system. Problem solved.

    I’m already in Frankfurt in case Mario Draghi is reading and wants to give me a job.

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