NICOSIA—Cyprus's government raced Wednesday to prepare for its banks' scheduled reopening after a two-week hiatus, announcing temporary capital controls to prevent deposits from fleeing the weakened institutions.

Amid fears that nervous savers could descend on the island's banks, the government rolled out aggressive curbs, expected to last at least a week and possibly much longer, on cash flows out of the country. The island's central bank was also stockpiling billions of euros of banknotes late Wednesday to cope with demand...