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man holding piggy bank

Just over a week ago, the world was shocked to hear the news of the Cypriots’ proposed banking deal.  In Cyprus the banks are failing, and in order to receive a bailout, Cyprus is required to fund most of their bailout.  Initially, the plan was to take a small percentage of all money held on deposit at banks, and after that plan caused great outrage among the depositors, a new plan was approved.  Now, depositors with over 100,000 Euro on deposit (those with uninsured accounts) will lose an estimated 30-40% of their money on deposit.  Banks have been closed for the past week, and Cypriots have had little access to their own money.  Some reports indicate that stores have quit accepting credit cards, and many ATMs have been empty.  Although banks were scheduled to reopen on Tuesday, March 26th, the new plan is to re-open on Thursday instead.  Depositors can expect withdrawal limits.

In some ways, the United States is in a very different position than Cyprus, because the United States has the capacity to print money.  In other ways, things are not so different, because Cyprus was initially planning to take money even from insured accounts, so it appears that there is little to stop a government from doing what they want.

How can we learn from Cyprus?  If the same thing happened to us in the future, would we allow ourselves to be victims, or can we prepare ahead?  I think we can prepare ahead, and I see four ways to do it:

  1. Keep cash – Any money that you keep in cash is not subject to confiscation by any government or bank (theoretically).  Previous generations (such as our grandparents and great-grandparents) often saved money by keeping cash.  They had a more reliable currency, so they could squirrel away money in a jar somewhere, or under the bed, and when they went to use it later it would buy even more.  Unfortunately, this is no longer true.   Now, the Federal Reserve creates increasingly larger amounts of money, which reduces the value of any money that you’re saving as cash.  Still, cash in your possession is easier to spend than money in a locked-down bank.
  2. Keep precious metals – Rock has written an excellent series of great posts (click here to read about Survival Silver) explaining why precious metals may be a good option for those who are choosing to prepare.
  3. Use cryptocurrencies (such as Bitcoin) – In a nutshell, a cryptocurrency is a decentralized digital currency; Bitcoins are the most popular example.  Bitcoins use a peer-to-peer system with a ledger that is updated at regular intervals (in the case of Bitcoin, it is updated every 10 minutes).  Actual Bitcoins are basically a long code of letters and numbers that is public, coupled with a long code of letters and numbers that only the owner has.  When someone spends Bitcoins, they use their private key to prove that they own the Bitcoins.  A major strength of Bitcoins is that they are money that nobody can take from you, because the system is dependent on a protocol that responds to you having the code.  The codes can be stored in online “wallets”, or even on paper.  Bitcoins can be used to secure money or to spend money; thousands of online stores accept Bitcoins.  Cryptocurrencies are the only money that offer final and sole possession money while also allowing you to spend it electronically (neither cash nor gold can do that).  There are risks to using Bitcoins; the price is very volatile.  Security and services are still being developed for Bitcoin users, so as with cash or gold it is possible to lose your Bitcoins if you’re not careful.  Bitcoins are increasingly gaining broader acceptance, though, and this year they passed the price of silver (and are currently more than double the price of silver.)
  4. Pre-purchase goods – If banks suddenly seize assets, they don’t come knocking on your door to collect food that you have already bought.  So, while your neighbors are fighting over the last bag of rice at the grocery store, you can still be living comfortably if you have food and other goods already stored.  If now is the right time for you to start preparing with food storage, I recommend checking out the eFoodsDirect 3 month food supply.

Most people will be best prepared with a combination of these options.

It’s disturbing to know that the government and banks in Cyprus have been able to freeze assets and will be helping themselves to whatever they want.  It would be worse to later find ourselves in a similar position and to know that we could have done something to protect ourselves.

What do you think about this?  Has the news of Cyprus inspired you to prepare?

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