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What price the Cypriot lira?

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  • Monetary unions die because of bank runs. The beeping heard from Cyprus is the sound of a monetary union on a life support system. It is however too simplistic to say that capital controls mean Cyprus has left the Euro - the ECB is still prepared to transmit money to Cyprus - it is still in.
  • The limit on how much cash can leave Cyprus (EUR3,000 per person) could allow economists to calculate the value of the Cypriot lira - if we know what premium wealthier Cypriots are prepared to pay to get their money off-shore, we know how much the Cypriot lira should be discounted against the Euro.
  • Italy still has no new government, which is not exactly news. Italy does have some experience in managing its economy in the absence of strong government. Euro area broad money supply is due for release today, which will likely underscore the problems of the transmission mechanism in the Euro area.
  • The US offers the Chicago PMI of business sentiment. We are looking for a slight decline in the number, indicating a still robust but somewhat slower rate of economic expansion. Final Q4 GDP is also scheduled for release.

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