Capital Controls

in LeoFinance3 months ago

through capital controls countries can try to limit or stop money from leaving so capital outflows as well as influence how much money enters the country so capital inflows why would they do that well one they try to limit capital outflows because people get scared easily when things go wrong like what happened after the Cyprus banking crisis in 2013 if let's say a major bank closes down in country a many citizens will stop trusting the other country a banks and decide to perhaps move their deposits to foreign banks this fear especially given the fractional reserve nature of the banking system can make other local banks insolvent so countries try to restrict outflows by a penalizing them for example through attacks be placing the limit on how much capital can be moved out C only allowing outflows under certain circumstances like for meeting business obligations D making it illegal altogether to move money out of the country and so on - they try to limit capital inflows because for example they're afraid of so called speculative hot money in other words speculative capital that enters the country quickly but leaves just as quickly if problems appear making those problems even worse countries can a ban short-term and flows for example chile thus allowing maturities below 24 months as of 1978 be penalizing inflows something Chile did when reintroducing inflow controls in 1991 by forcing those that sent capital to make a 20% zero interest reserve deposit the list could go on and on while capital controls can be part of a short-term damage control strategy for one country or another things can get very tricky if everyone does it