Central Bank of Cyprus

The Central Bank of Cyprus, is the central bank of the Republic of Cyprus, located in Nicosia. It was established in 1963 and manages a state’s currency, money supply, and interest rates. Additionally, the central bank of Cyprus oversees the commercial banking system in the country. The central bank of Cyprus is a governmental entity and should not be confused with Bank of Cyprus which is the largest commercial bank in the country.

The Governor of the Central Bank of Cyprus is the highest official in the Central Bank of Cyprus. The position was established in 1963 when the Central Bank of Cyprus was established and is currently fullfilled by Chrystalla Georghadji.

The Governor has the responsibility of chairing the meetings of the Central Bank’s Governing Council and Board of Directors. He or she had the responsibility for setting the Central Bank’s policy in relation to the Cypriot economy, but this responsibility passed to the  President of the European Central Bank on 1 January 2008, which is also the date that Cyprus changed over to the euro from the Cypriot pound. The Governor is a member of the Governing Board of the European Central Bank.

The primary function of a central bank is the monetary policy of the country, through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis. Central banks usually also have supervisory powers, intended to prevent bank runs, in 2012 during a bank panic and in 2014 when FBME Bank was accused of money laundering, and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behavior. Central banks in most developed nations are institutionally designed to be independent from political interference. Still, limited control by the executive and legislative bodies usually exists.

The situation with FBME Bank resulted in an arbitrage case in front of the International Chamber of Commerce (ICC) in Paris. The arbitrage panel investigates the responsibilities of FBME Bank and the central bank and will result in a verdict. This verdict instantly creates liability. If the central bank is responsible and therefore liable for the closure and the final downfall of FBME Bank, it creates a liability towards FBME Ltd., the holding company of the bank. If however FBME Bank is responsible for its own downfall, liability results in potential criminal investigations and presumably prosecution. There are high stakes at play. A game where bank customers should stay far away from.