What's in a Name? That Which We Call Capital Controls

46 Pages Posted: 28 Mar 2016

See all articles by Atish R. Ghosh

Atish R. Ghosh

International Monetary Fund (IMF) - Policy Development and Review Department

Mahvash Saeed Qureshi

International Monetary Fund (IMF) - Research Department

Date Written: February 2016

Abstract

This paper investigates why controls on capital inflows have a bad name, and evoke such visceral opposition, by tracing how capital controls have been used and perceived, since the late nineteenth century. While advanced countries often employed capital controls to tame speculative inflows during the last century, we conjecture that several factors undermined their subsequent use as prudential tools. First, it appears that inflow controls became inextricably linked with outflow controls. The latter have typically been more pervasive, more stringent, and more linked to autocratic regimes, failed macroeconomic policies, and financial crisis-inflow controls are thus damned by this 'guilt by association.' Second, capital account restrictions often tend to be associated with current account restrictions. As countries aspired to achieve greater trade integration, capital controls came to be viewed as incompatible with free trade. Third, as policy activism of the 1970s gave way to the free market ideology of the 1980s and 1990s, the use of capital controls, even on inflows and for prudential purposes, fell into disrepute.

Keywords: gold standard, interwar period, Bretton Woods, financial crisis, markets, market, emerging markets, All Countries,

JEL Classification: F21, F32

Suggested Citation

Ghosh, Atish R. and Qureshi, Mahvash Saeed, What's in a Name? That Which We Call Capital Controls (February 2016). IMF Working Paper No. 16/25, Available at SSRN: https://ssrn.com/abstract=2754929

Atish R. Ghosh (Contact Author)

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Mahvash Saeed Qureshi

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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