March 18 - The euro skidded lower in Asia early Monday as surprise news that Cyprus would have to tax depositors as part of a bailout plan was taken as setting a dangerous precedent that could ultimately risk runs on some banks in the region.
The single currency was changing hands at $1.2920 , down from $1.3054 late in New York on Friday. It was also down at 121.74 yen, from around 124.54.
The U.S. dollar was a major beneficiary of safe-haven flows, rising 0.5 percent against a basket of currencies to reach 82.670.
“The week was off to a chaotic start on the Asia open this morning after Saturday’s Eurogroup announcement on Cyprus’ bailout deal,” said analysts at JPMorgan.
“The fear will be that haircutting depositors in the Euro area renews deposit flight from peripheral banks.”
Euro zone leaders and Cyprus agreed on Saturday that depositors should be taxed up to 10 percent - 6.7 percent on amounts below 100,000 euros and 9.9 percent on figures above that - to raise 5.8 billion euros so the island country could be eligible for an international bailout.
Taxing depositors would be a major change from usual practice and could incentivise depositors in other debt ridden countries to shift their money to EU banks that would not be at risk, such as in Germany.
The news triggered a run on cash points on Saturday, depleting them within hours while it was unclear whether banks would open for business on Tuesday after a Monday bank holiday.
There was also a risk the Cyprus parliament would vote against the tax proposal.
Which could be why Cyprus was in talks with international lenders on Sunday to possibly change the size of proposed levy’s on bank deposits, a source close to the consultations said.
Cyprus was discussing with lenders the possibility of changing the levy to 3.0 percent for deposits below 100,000 euros, and to 12.5 percent for those above that.