The 1st January 2008 is a historic date for the Republic of Cyprus. On that date, the Cypriot currency will change from the Cyprus Pound (CYP) to the Euro (EUR, €).
The Cyprus Pound was introduced in 1879, when Cyprus was a British Colony and until 1960, it was equal in value to the British Pound Sterling. Although at the time of writing this article, one Pound Sterling will buy just 0.786 Cyprus Cents.
The exchange rate has been set at €1 = CY£0.585274
According to the pundits, the introduction of the Euro will have a positive effect on the property market. This is because of an immediate increase in transparency in pricing. Property prices in Cyprus can be compared with all the other major Mediterranean markets such as Spain, France, Italy and Malta.
The accession of the Republic of Cyprus to the European Union is a three-year-old reality and the country is preparing to make the next most important step in its recent history and adopt the euro on January 1, 2008. The Cyprus pound will be replaced and the country will become a member of the Economic and Monetary Union (EMU).
The countdown to the conversion from the pound to the euro has already begun and the authorities are busy with the necessary preparations. The Central Bank of Cyprus (CB) has already begun supplying the commercial banks with coins and bank notes, while in cooperation with the Ministry of Finance intensifies the information campaign.
The aim of the campaign is twofold, to increase to the maximum level public awareness of the ways transactions will be made and to allay the public’s concerns about any possible negative impact on everyday life, mainly fears about a hike of prices following the transition.
The Central Bank stresses in an information bulletin that the euro will not affect the way transactions are made, nor will it influence the way of life. The euro, the Bank points out, will not alter the values of assets or receivables or increase liabilities (real assets, cash, bank deposits, loans, pensions, etc) and that applies to values and liabilities of residents and non residents. What will change is the expression of these values, which as of January 1st will be translated in euro instead of the existing legal tender, the Cyprus pound.
According to the CB, instead of a negative effect the introduction of the euro will bring about significant benefits to the economy as a whole, such as low inflation, low interest rates, sound public finances and the protection against the negative effects of international economic fluctuations, something that is particularly important for a small open economy like Cyprus.
The Bank says that another important aspect of the introduction of the euro relates to the transparency of prices in the single EU market, which will make the comparison of prices easier, promote competition and lead to lower prices for the local consumer, either Cypriots or visitors.
The transition to the euro will also lead to the abolition of the currency conversion cost between Cyprus and the rest of the euro area, as well as the elimination of the exchange rate risk, which as a result will generally encourage trade transactions and lead to lower prices.
Both savers and investors will benefit from the larger number of saving and investment opportunities that exist in the single financial market of the EU.
Commercial banks in Cyprus are already preparing for concrete practical measures that will enable them to continue smoothly their operations and at the same time serve the public.
According to information obtained by CNA, on December 31, 2007 commercial banks will accept only cash deposits between 10:00 and 13:00 local time. During this period small enterprises will be able to obtain from the banks coins and bank notes.
The public will also have the opportunity to receive euro bank notes on New Year’s Eve since most of the Automatic Teller Machines (ATM) will be accordingly adjusted. Almost all ATMs will be adjusted to dispense euro banknotes immediately after midnight on 31 December 2007.
On January 1, 2008, which is the official day of the conversion from the pound to the euro, commercial banks will operate one branch each on each city to serve the public that would wish to exchange Cyprus pound with euro. The branches will open between 11:00 – 14:00.
The conversion rate between the pound and the euro was set on 10 July 2007 by the Council of the EU at €1=CY£0.585274. From September 2007 until September 2008, the dual display of prices (in pounds and euro) for goods supplied and services rendered to the consumer (with some exceptions) is compulsory by law.
As of 1 January 2008, all amounts should be expressed in euro (instead of Cyprus pounds). All non-cash payments, such as electronic payments with the use of cards, bank transfers, standing orders, cheques, will be carried out in euro. As regards cheques, as of 1 January 2008, these should be expressed in euro otherwise they will not be valid.
On 1 January 2008, banks and co-operative credit institutions (CCIs) or other organisations where accounts are held (loans, deposits, etc.) will convert the balance of each account from pounds into euro, without any charge. The conversion rate (EUR1=CYP0.585274) will be applied and a two digit rounding will be made, according to the relevant EU regulations.
As regards cash transactions, the public will be able to use Cyprus pound banknotes and coins as a means of payment for a period of one month from the day of the adoption of the euro, that is up to 31 January 2008. This period is referred to as the period of parallel circulation because the Cyprus pound will circulate in parallel with the euro.
The exchange of Cyprus pounds will be carried out by banks and CCIs for a period of 6 months following the date of euro adoption, i.e. until 30 June 2008, without any charge up to a limit, applying the conversion rate.
This limit has been set at CYP1,000 per person per transaction for banknotes and CYP50 per person per transaction for coins.
The Central Bank of Cyprus will continue exchanging, free of any charge and without quantity limit, coins for a period of two years after the introduction of the euro i.e. until 31 December 2009 and banknotes for a period of 10 years i.e. until 31 December 2017.
In relation to contracts signed before 1 January 2008, but which will continue to be in effect after this date, e.g. rental agreements, sales documents, contracts for the purchase of services or products etc., it should be noted that these will continue to be in force even after the introduction of the euro, with the same terms and conditions. The only aspect, which is affected is that, wherever there is a reference to a payment or to an amount in Cyprus pounds, then this will automatically be considered as referring to the corresponding amount in euro, converted using the conversion rate mentioned above, rounded to 2 decimal points, in accordance with the corresponding European regulations.
Cheques denominated in Cyprus pounds, dated 1 January 2008 and afterwards, will not be valid. Cheques in Cyprus pounds issued prior to 1 January 2008 will continue to be valid, according to the existing banking practice, for a period of six months from the date of their issue and shall on presentation be paid in euro.
Another important aspect of the conversion from the pound to the Euro is that the interest rates of the Cyprus pound will no longer exist and the interest rates of the European Central Bank will apply to loans, deposits and advances.
