This paper examines the financial liberalization choices available to Cyprus on the road to EU membership. It argues that the central bank’s proposal of full and immediate liberalization of interest rates and capital inflows entails a number of hidden dangers for the stability of the island’s economy. It puts forward an alternative proposal of a more gradual liberalization process coupled with supplementary measures aimed at strengthening the institutional framework of the Cypriot financial system. This proposal significantly reduces any risks emanating from financial liberalization and ensures the harmonization of the Cypriot financial system in time for EU accession. It has been endorsed by the Co-operative Movement and, at the time of writing, is being considered by the Cypriot government.
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Article provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.
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Find related papers by JEL classification: E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development