Financial Corralito: what is it – Dictionary of Economics

Financial playpen concept

A financial or banking ‘corralito’ is a set of restrictive political measures that seeks to prevent the mass outflow of bank deposits.

The term was coined in Argentina to refer to the restriction on the free disposal of fixed-term cash, checking accounts and savings banks imposed by the government of then President Fernando de la Rúa in December 2001, and was lasted for almost a year when the release of the withheld deposits was officially announced on December 2, 2002. Later this term spread to all Spanish-speaking countries.

The Argentine Corralito

Faced with the significant withdrawal of funds from the banks, the Argentine government published on December 3, 2001, a decree that established prohibitions for financial entities and for the public.

Prohibitions for entities

– They could not carry out active operations denominated in pesos, nor intervene in the foreign currency futures or options market, nor arbitrate directly or indirectly with term assets in pesos. Current operations may be converted to US dollars at the ratio provided in Convertibility Law No. 23,928, with the consent of the debtor.

– They could not offer higher interest rates for deposits denominated in pesos, compared to those offered for deposits denominated in US dollars. Current operations may be converted into foreign currency, at the request of their holders, according to the ratio established in Convertibility Law No. 23,928.

– They could not charge any commission for the conversion of the pesos they receive to carry out any type of transaction, deposit, payment, transfer, for US dollars to the relationship provided for in Convertibility Law No. 23,928, nor in dollar conversion operations American pesos for pesos, provided that any of said operations are carried out through accounts opened in financial entities.

Bans for the public

– The withdrawal in cash that exceeds two hundred and fifty pesos or two hundred and fifty US dollars per week, by the holder, or holders acting jointly or indistinctly, from the total of their accounts in each financial entity.

– Transfers abroad, with the exception of those corresponding to foreign trade operations, the payment of expenses or withdrawals made abroad through credit or debit cards issued in the country, or the cancellation of financial operations or for other concepts, in the latter case, subject to authorization by the Central Bank of the Argentine Republic.

Playpen in Cyprus (2013)

On March 16, 2013, bank deposits were blocked and the banking offices of Cyprus were closed, foreseeably until March 25, in order to avoid a banking panic or massive withdrawal of deposits due to the imposition by the ministers of economy of the EU of a levy on bank deposits. In exchange for this tax, the eurozone would have agreed to help 10,000 million euros to avoid bankruptcy of the country.