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Is cash King?

27 March 2013, 13:01

So this Cyprus-thing has really got people talking – and rightly so. 

For a number of years, people the world over have been using Cyprus as a “haven”.  Be it for stashing excess money, getting away from the law (ask the UK police how many of their citizens have been found there), making it your retirement venue of choice, or for something really mundane like a well-earned holiday.

I wanted to have a bank account in Cyprus a couple of years ago, and was told by an offshore consultant that it was simple.  You buy an offshore company.  You have a “nominee director” so your name does not appear anywhere.  You could even have this bank account if you had a bad credit rating.  The catch was that the nominee director was also a director of the Bank of Cyprus.  Pay your mney and voila - you have your offshore bank account at Bank of Cyprus.  No questions asked.  Easy as pie.

Cyprus has been doing this for decades – and the majority of the money is Russian.  And the vast majority of that Russian money is derived from money laundering or tax evasion, usually the latter.  It is estimated the Bank of Cyprus holds more “cash” reserves than the GDP of most European Union countries.  Up to relatively recently when Cyprus started to try and clean up its act in order to gain EU membership, the Russians would arrive regularly with suitcases of cash, and would be accepted with open arms.  Hence the rich cash reserves of the banks, whilst the country is teetering on bankruptcy.

Don’t get me wrong – I sell offshore companies and open offshore bank accounts on a daily basis.  We do all our “Know your Client” background checks.  And the majority of the companies are not formed for the purposes of money laundering or tax evasion.  It all comes down to the risks you are prepared to take with your company and your livelihood – knowing your client.  And we don’t do Cyprus.

Cyprus is in the position it is in as a result of the greed of its Government and the alacrity with which it opened its arms and its banks to all and sundry and their money.

So where to now for Cyprus ?  What will happen when the banks re-open tomorrow ? And, even more importantly, which country may be next ?  There is talk of the “Cyprus template” being used in other EU countries which may need a bail-out in the future. 

Where does this leave Joe Citizen, and who can he trust ?  A person’s relationship with their bank is based on trust – but what if the Government of the country in which you bank proves to be untrustworthy and can take a decision to “seize” your funds without your consent to get themselves out of economic difficulties ?

This got me thinking then about the normal man-in-the-street who wants to open a normal, every-day bank account – nothing to do with offshore or investment of any kind.    You have to provide, as an absolute minimum :

·         at least one, and sometimes two, identity documents

·         a proof of residential address which is not more than 3 months old, and which does not contain a PO Box number (if you are still living at home you will not likely have anything in your name)

·         proof of income and source of funds (if you are a student doing part-time work this is an almost impossible task)

And then if you are lucky enough to have a bank account, you will get charged every time that you even think about your bank account.  You will be charged for your debit card;  you will be charged for each transaction at an ATM;  you will be charged a commission when depositing or withdrawing cash; if the bank has a minimum balance you will be charged if your balance falls below that minimum.  And the list goes on.  You will end up paying more in bank charges that any interest which the bank may have offered you.

And don’t be stupid enough to ask for a loan – you cannot get a loan unless you have a credit record.  I don’t know how you are supposed to get your first loan.

And if you do get a loan and are lucky enough to be able to pay it off early, don’t.  You risk being charged penalty interest for breaking the loan agreement.

All of the above got me thinking again about a possible solution to all these financial crises.  I must admit that the only thing that came to mind was this :  I know why they say “Cash IS King” – they are talking about the king-size inner spring mattress where the old folks used to keep their money.  Certainly a much cheaper alternative.  And if you had your money in Cyprus, certainly a lot safer.  Not sure if that would be true in South Africa though….

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