Capital controls have been in place in Greece since the start of the month to protect the banks from mass withdrawals by nervous Greeks. They have rightly been concerned about their savings, the collapse of the banking system and the loss of their savings in deposit confiscations or bail-ins.
Many Greeks were also withdrawing their cash because they fear the country might be forced back onto the drachma. However a little known fact is that, Greeks who had prepared for bank runs by withdrawing cash and buying gold and silver bullion and then lodging that bullion and indeed cash into safety deposit boxes have also been caught up in the draconian capital controls.
We have warned about this for many years and warned as recently as April this year that people should avoid using safety deposit boxes in banks.
“Greeks cannot withdraw cash left in safe deposit boxes at Greek banks as long as capital restrictions remain in place”, Nadia Valavani, a Deputy Finance Minister in Greece told local television station according to a Reuters report.
The report was little noticed at it was published on the less trafficked ‘Bonds’ section of Reuters.com on Sunday July 5th at 1:58 pm EDT or 6:58 pm GMT. Sunday afternoon and evening is a time when traders, investors and even eagle eyed news junkies are likely to be taking a well-earned break.
The notion that safe deposit boxes – facilities that are used by many precious metals investors and others seeking to safeguard their wealth and valuables – need to come under capital controls to protect against bank runs is a dubious one.
This cash is not in the banking system – its withdrawal would have no negative impact on the system. Its availability to its owner might bring cash into circulation, which would benefit the wider community.
The only reason to put access to safe deposit boxes under capital controls – measures which were agreed between the government and the banks – is because the banks and governments wish to retain the option of confiscating the contents of those boxes should the crisis deepen.
The low level war on cash and gold looks set to intensify, and governments look likely to wish to prevent savers and investors taking their cash out of the bank and putting them in safe deposit boxes. This draconian move may be part of an endeavor to do that.
Safety deposit boxes are a convenient facility to store a small quantity of precious metals. However – as the Greek situation demonstrates – the convenience of ease of access to a local safe deposit box can be offset by the fact that governments and banks can lay claim to their contents at the stroke of a pen.
It would be unwise to view Greece as an exceptional case.
Such complacency is not shared by respected economic historian Marc Faber who recently warned Bloomberg viewers that “Greece is coming to your neighborhood very soon” because “the world is over-indebted”.
Many well-placed observers from HSBC, Goldman Sachs and Fidelity have echoed this view in recent months. Most recently Fidelity’s Ian Spreadbury made the highly unorthodox recommendation that savers should keep some precious metals and cash “under the mattress”.
What happens next in Greece will determine the fate of the deposit box holders and indeed all citizens in Greece and indeed the wider Eurozone.
The ECB, reneging on its duty of lender of last resort, has put Syriza in an untenable position. It should be remembered that Mario Draghi came to the ECB from Goldman Sachs despite the fact that Goldman were found to have aided the previous Greek government in order to cook the books in order to borrow €1 billion that it could not afford in 2008 and indeed to join the monetary union. Indeed it is alleged the Draghi himself helped cook the books but he denies this and says Goldman did this prior to his joining.
The Telegraph’s AEP writes, “The Greek banks are on the verge of collapse. There is not enough cash left to cover ATM withdrawals of €60 billion each day through this week, or to cover weekly payments of €120 to pensioners and the unemployed – that is the to say, the tiny fraction of the jobless who receive anything at all.”
In the run up to the referendum former Finance Minister Varoufakis had made assurances that the EU had no legal power to expel Greece from the euro – a statement which likely encouraged the electorate to vote “No”. True though this may be, the EU institutions have instead created the conditions whereby Greece either capitulates completely or is forced to leave the euro of its own accord.
The “deal” which Tsipras must now get through parliament in Athens may save the banking system for now – or not, depending on the reaction of the public to the deal – but at great cost to Greece.
Pensions will be slashed; Value Added Tax (VAT) or sales tax will be imposed on goods and services.
Vital elements of Greece’s infrastructure will be sold off to businesses with close links to the financial institutions who played a key role in creating the crisis – and yet have only benefitted from the repercussions – following the typical IMF template for debt colonialism.
Whatever the outcome with regards to the contents of safe deposit boxes in Greece – while not forgetting that there are far more pressing issues at stake for the people of Greece and Greek society – there is a clear lesson from recent events.
As we consistently warn gold, silver and cash stored within the financial and banking system is in no way secure in the event of a crisis.
Investors should hold some physical gold and silver outside of the banking system in secure and private safe deposit box facilities. Precious metals should also be held in jurisdictions with a reputation for respecting private property such as Switzerland, Hong Kong and Singapore.