Capital control

Capital controls limit the freedom of international capital movements. You can in the form of taxes on capital inflows and / or outflows are present, or in the form of quantity restrictions, licensing requirements or reporting requirements for the transfer of capital abroad.

Capital controls were used, for example in Chile from 1982-1999, in order to limit the volume of short-term foreign currency loans, as the sudden withdrawal of such loans may trigger a financial crisis ( eg in the so-called Mexican Tequila crisis ).

Molding

Basically can be distinguished:

• Direct capital controls regulate cross-border financial transactions through approval procedures or prohibitions.
• Indirect capital controls to try more expensive certain financial transactions. For example, through taxation of cross-border capital flows ( FTT ) or by a system of dual or multiple exchange rates.

Assessment

The financial market theory suggests that liberalization of capital movements will lead to lower capital costs and easier access to capital. Through free competition financial systems would gain flexibility and efficiency. In addition, open capital markets also ensured that the economic policies of the countries of the subject will " disciplining " role of financial markets. Following this theory, most countries have liberalized their capital markets by dismantling of capital controls since the 1980s.

Since then, international financial crises such as the Asian crisis, the Russian crisis and the financial crisis have occurred since 2007 that have led some economists to a changed assessment of liberalization. For example, were of the Asian crisis such countries most affected, who had their financial markets liberalisisert recently, countries such as China and India, have maintained strict capital controls were hardly affected by the crisis. Many economists saw the high volatility ( volatility ) of international capital flows as a source of international financial crises.

Barry Eichengreen and David Leblang represented a mediating position. After that the net benefits of capital controls is positive if the international financial markets through more turbulent phases, because the national economy is then protected from contagion. However, when the international financial markets are in robust shape, dominate the growth -promoting effects of free financial markets and the net effect of capital controls is negative.