Fearing a run on its banks, the tiny Mediterranean country has imposed daily withdrawal limits of 300 euros ($384) for individuals and 5,000 euros for businesses — the first so-called capital controls that any country has applied in the eurozone's 14-year history.
Financial strains are building on families and businesses, and the recession in Cyprus is likely to deepen. The mood outside banks was calmer than feared. Many people said the withdrawal limits were probably necessary to keep a bad situation from spiraling out of control.
Flower shop owner Christos Papamichael was among some 30 people waiting patiently for bank doors to open at noon Thursday. "Everything has been paralyzed ... No one thinks of buying flowers," he said.
Banks had been shut in Cyprus since March 16 to prevent people from draining their accounts as politicians scrambled to save the country's stricken financial sector. ATM machines were working, but with a limit on daily withdrawals.
An initial plan to seize up to 10 per cent of all Cypriot deposits caused an international uproar and was scrapped. But in order to secure 10 billion euros ($12.9 billion) in loans from other euro countries and the International Monetary Fund, Cyprus agreed Monday to wind down its second-largest bank and seize billions from accounts holding more than the insured limit of 100,000 euros.
European financial markets, which have been on edge for weeks, rose slightly on Thursday. The FTSE 100 index of leading British shares rose 0.4 per cent, while Germany's DAX index rose 0.1 per cent.
Government and bank officials had feared that up to 10 per cent of the country's deposits could be siphoned off when banks opened Thursday — but that did not appear to happen. Guards from private security firms reinforced police outside some ATMs and banks in the capital, Nicosia. No problems controlling crowds were reported.
The limits on withdrawals and other capital controls are expected to be relaxed gradually. Analysts say it's anyone's guess how people and businesses will react once that happens.
Foreign Minister Ioannis Kasoulides said that, according to central bank estimates, the controls would be fully lifted in a month. Some analysts say it could last longer.
President Nicos Anastasiades expressed in a statement his "warm gratitude and deep appreciation towards the Cypriot people for the maturity and spirit of responsibility they have shown at a critical time for the stability of the Cypriot economy."
However, many Cypriots were left frustrated and confused by the closures and controls and concerned about the effect on their businesses and livelihoods.
"No matter how much information there was, things were changing all the time," said Costas Kyprianides, a grocery supplier in Nicosia.
For years, the banking sector has been the lifeblood of the Cypriot economy, attracting money from across Europe — and especially Russia — thanks to high interest rates and loose regulation. The country's deposits ballooned to more than seven times its economic output. But Cypriot banks ran into trouble after taking massive losses on Greek government bonds.
Now, the country's second-largest bank, Laiki, is to be split up, with its healthy assets being absorbed into the Bank of Cyprus. Savers with more 100,000 euros ($129,000) in either Bank of Cyprus and Laiki will face big losses. At Laiki, those could reach as much as 80 per cent of amounts above the 100,000 insured limit; those at Bank of Cyprus are expected to be much lower.
As part of the country's capital controls, no checks can be cashed, although they can be deposited. Anyone leaving the country, whether Cypriot or a visitor, can only take up to 1,000 euros ($1,290) with them in cash.
The country's general accounting office said pensions and other social security payments, together with salaries for government employees, will be in bank accounts next Tuesday and Wednesday.
Many Cypriots struggled Thursday to understand what exactly they could and couldn't do with their money. Television talk shows addressed viewers' queries, which ranged from how they would pay college tuition for children studying abroad to how to handle check payments.
People also wondered whether they would be able to access their salaries, many of which were due this week.
Some analysts are concerned that, if kept in place long, Cyprus's measures will go against the fundamental principle of the single currency: Free and easy movement of money around the euro's 17 members.
In a statement Thursday, The European Commission said "the free movement of capital should be reinstated as soon as possible".
Not every account in Laiki and Bank of Cyprus will be hit with big losses. Deposits held by the central government, local authorities such as municipalities, universities and development projects being co-funded by the European Union will not face a so-called haircut.
Government welfare and pension fund accounts in Laiki will be treated in the same way as those in the Bank of Cyprus, "thereby ensuring most of the deposits," said Constantinos Petrides, undersecretary to the president.
Some individuals and businesses had moved their money out of Cyprus well before the banks closed their doors last week.
According to ECB figures, deposits in Cyprus' banks slipped 2.2 per cent last month, to 46.36 billion euros ($59.36 billion), the lowest figure since May 2010 and down from a peak of 50.5 billion euros ($64.67 billion) in May 2012. The figure excludes deposits from other banks and the central government.
"I anticipated, not this to happen, but I anticipated issues last year, when Greece had a question of whether it will remain in euro and the consequences of that," said Athos Angelides, who runs a business importing and distributing hair salon products. "So luckily we transferred money in the middle of last year over to the UK."
The stock market, which has been closed since March 15, stayed shut. It will remain closed on Friday and Monday, when most of Europe is closed for the Easter celebrations. Cyprus follows the Orthodox calendar and does not celebrate Easter until May this year.
Elena Becatoros in Nicosia and David McHugh in Frankfurt contributed.