Arguments in Favour of Capital Controls
Pro capital control economists have made the following points.
- Capital controls may represent an optimal Macroprudential policy that reduces the risk of financial crises and prevents the associated externalities.
- Global economic growth was on average considerably higher in the Bretton Woods periods where capital controls were widely in use. Using Regression analysis, economists such as Dani Rodrik have found no positive correlation between growth and free capital movement.
- Capital controls limiting a nation's residents from owning foreign assets can ensure that domestic credit is available more cheaply than would otherwise be the case. This sort of capital control is still in effect in both India and China. In India the controls encourage residents to provide cheap funds directly to the government, while in China it means that Chinese businesses have an inexpensive source of loans.
- Economic crises have been considerably more frequent since the Bretton Woods capital controls were relaxed. Even economic historians who class capital controls as repressive have concluded capital controls, more than the period's high growth, were responsible for the infrequency of crisis. Studies have found that large uncontrolled capital inflows have frequently damaged a nation's economic development by causing its currency to appreciate, by contributing to inflation, and by causing unsustainable economic booms which often precede financial crises - caused when the inflows sharply reverse and both domestic and foreign capital flee the country. The risk of crisis is especially high in developing economies where the inbound flows become loans denominated in foreign currency, so that the repayments become considerably more expensive as the developing country's currency depreciates. This is known as original Sin (economics).
Read more about this topic: Capital Control, Free Movement of Capital and Payments
Famous quotes containing the words arguments in, arguments, favour, capital and/or controls:
“‘Tis happy, therefore, that nature breaks the force of all sceptical arguments in time, and keeps them from having any considerable influence on the understanding. Were we to trust entirely to their self-destruction, that can never take place, ‘till they have first subverted all conviction, and have totally destroy’d human reason.”
—David Hume (1711–1776)
“When I am convinced of any principle, it is only an idea which strikes more strongly upon me. When I give the preference to one set of arguments above another, I do nothing but decide from my feeling concerning the superiority of their influence.”
—David Hume (1711–1776)
“It is useless for the sheep to pass resolutions in favour of vegetarianism, while the wolf remains of a different opinion.”
—W.R. (William Ralph)
“Had I made capital on my prettiness, I should have closed the doors of public employment to women for many a year, by the very means which now makes them weak, underpaid competitors in the great workshop of the world.”
—Jane Grey Swisshelm (1815–1884)
“The confusion of emotions with behavior causes no end of unnecessary trouble to both adults and children. Behavior can be commanded; emotions can’t. An adult can put controls on a child’s behavior—at least part of the time—but how do you put controls on what a child feels? An adult can impose controls on his own behavior—if he’s grown up—but how does he order what he feels?”
—Leontine Young (20th century)