While Cyprus’s banks were closed, the focus of column inches was on the economic fallout of the banking crisis in the Mediterranean island republic and the proposed terms of an EU bailout.
It was only when the banks opened their doors again that attention started to shift onto what the future will hold for Cyprus as an offshore financial centre, and the potential impact on centres elsewhere in the world.
With measures that will see 37.5% of deposits greater than €100,000 ($131,000) in Cypriot banks converted to bank shares, a further 22% moved to a zero-interest fund, and interest on the remainder dependent on bank performance, it will not matter how draconian the capital controls, there will be a trickle of assets leaving the island which will ultimately amass to a flood.
Inevitably high-net-worth money is the most flighty, so it seems likely that Cyprus’s sorry travails will be a triumph for other wealth management hubs.
Immediately, triple-A rated Luxembourg seems like the most likely beneficiary as a eurozone centre with a growing focus on UHNW business.
Yet, the latest crisis may see no single offshore centre stand to benefit alone. The bailout of Cyprus has once again ridden roughshod over the notion of depositor protection, especially for wealthier investors.
It may well act as a reminder to HNW savers of the importance of spreading risk not just between banks, but between offshore centres, and even between supranational jurisdictions, given the role the EU has played in this latest shock.
In this context, Asia’s offshore centres may stand to gain. Singapore stands out, not least due to its double tax treaty with Russia, which Hong Kong is lacking.
Singapore also has the advantage of a unified regulatory system, with an accent on high-net-worth solutions. And, perhaps most importantly, the city-state stands independent from the influence of external forces and power blocs.
By contrast, Hong Kong has multiple regulatory bodies, while the influence of China cannot be ignored, particularly in this context.
As for Cyprus, it is too soon to call where its future may lie. Icelandic or Latvian-style austerity does not seem to be on the cards given the shifting focus of domestic politics to a banking blame game.
However, at the meeting point of Africa, the Middle East, Central Europe and Continental Europe, Cyprus is a gateway surrounded by many other nations in political and economic flux. It is likely it will see as many opportunities as challenges in the years ahead – regardless of whether it keeps or cuts ties to the EU.