[holding answer 15 June 2007]: Appendix O to the 1960 treaty establishing the Republic of Cyprus states
“the currency of the Republic will be legal tender in the Sovereign Base Areas (SBAs)”.
Since 1960 the SBAs, including the large numbers of Cypriot citizens and British military personnel resident there, have used the Cyprus pound and not the pound sterling. The Republic of Cyprus is expected to replace the Cyprus pound with the euro from 1 January 2008. If this happens then the legal tender in the SBAs will become the euro. Use of a currency in the SBAs other than that circulating in the Republic of Cyprus would be impractical, and would run counter to the 1960 treaty.
UK military and UK based civilian staff will continue, as now, to be paid in pounds sterling and they can continue, as now, to elect to have a portion of their salary paid in the local currency into a local bank account. The same process applies in other overseas locations including Germany which also now uses the euro.
HMG has consulted both the Government of the Republic of Cyprus and the European Commission on the practical aspects of euro use.