Be very, very, careful of the new story on capital controls

It\’s entirely true that the IMF now thinks that capital controls can be useful:

The International Monetary Fund has rethought its doctrine on capital controls. The IMF, which previously favored unfettered flows of money across borders, now accepts that controls are sometimes necessary.

When they\’re useful is when there\’s a flow of portfolio investment in or out of an economy or currency. At which time it might be a good idea to limit such flows to reduce the damage the gyrations might cause.

Humpf, well, OK then.

However, I can see the usual suspects lining up for something entirely different. And this is my prediction for the next (or one of the next) great lefty campaigns of our time. I\’ve seen the Murphmeister and NEF for example, using this IMF argument about surges, to argue for complete capital controls.

That is, not that we might want to dampen surges. But that we want to prevent the movement of capital altogether. You know, go back to only being allowed to take £25 out of the country. Having to ask a petty bureaucrat whether you can replace the boiler in your Portuguese hideaway (no, really, this did used to happen. If you had a house overseas and money in the UK you needed permission to get the cash to where you could even maintain, let alone repair or buy, the house). We\’d all have to go on package holidays again so that we could pay in sterling at home.

And the reason they want this is that as soon as capital becomes immobile then they can tax it. Which makes this very much an important freedom and liberty thing. They want capital controls so you can\’t fuck off and take your stuff with you. Given that it is the ability to fuck off and leave them to it which restricts, to some degree, their actions, then we really can\’t let them win in imposing capital controls again.

And mark my words: they\’ll be proposing it soon enough.


Should governments have control over what sort of money comes into their country? Up until fairly recently there were strict restrictions on the movement of money around the globe – can we ever go back?

As I say, The Murph:

I warmly welcome this move. It is vital. It gives countries back control of their economies and currency. It reasserts democratic control. It ensures the rights of capital are constrained vis a vis labour. It ensures that real attempts to reduce inequality can be undertaken. It means sanctions can be imposed on tax havens.
I do not suggest the IMF is solving all problems overnight: it is not. But this is a welcome step in the right direction. The ideology of neoliberalism has brought us to our knees. Tackling it is vital if we are to create a new and sustainable prosperity. Permitting capital controls is one small step on the way.

See how they\’re twisting things?

13 thoughts on “Be very, very, careful of the new story on capital controls”

  1. So Much For Subtlety

    I think what is wrong with much of the modern world is that people have developed all sorts of little tricks for screwing over ordinary people. The actual ideology of the government doesn’t matter all that much – the Marxist Soviet regime copied from the Imperial German government of WW1 for instance.

    It is as if every politician, and would-be politician, has a bag full of tools. They know that they can impose currency controls. They did it once, they know they can do it again. They know that they can encourage children to denounce their parents. Worked in the USSR, and it seems to be worth trying for something like smoking.

    The problem in the modern world is that in the end, someone will pick most of these tools. They will find a cause good enough to justify it in their eyes. Once we have done it once, we can’t go back and pretend we didn’t.

  2. Well the only good thing is that you either have to implement them for everyone (or at least a large chunk of the world) in one fell swoop, or it will just impoverish whichever country jumps first. The moment a country unilaterally says ‘Right, thats it. No more money out of the country unless we say so’ is the moment it loses every bit of inward investment it could have attracted.

    So no one country is going to jump first, however much the Ritchies of this world jump up and down. And getting agreement among large numbers of nations with conflicting interests will be virtually impossible, especially when there would be huge rewards for letting everyone else do it first, and holding off yourself, thereby making your nation a magnet for international capital.

  3. So Much For Subtlety

    Jim – “The moment a country unilaterally says ‘Right, thats it. No more money out of the country unless we say so’ is the moment it loses every bit of inward investment it could have attracted.”


  4. “it reassertion democratic control”

    This will be the “German Democratic Republic” definition of ‘democtratic’ then, rather than the actual demos being able to do what they see fit with their money.

  5. @Rob – the eternal conflict between democracy and liberty. If the demos says you can’t spend your money in Turkey or Spain that’s democracy restraining liberty. Regrettably, we seem to have collectively forgotten the concept that liberty should restrain democracy instead.

  6. I’ve long thought that maintaining exchange controls for 40 years(!) from the start of the war was one of the reasons Britain’s international trading economy never really recovered. It was all rather horrible, so it stands to reason some would like to go back to general misery. Roy Hattersley as Shadow Chancellor wanted to reintroduce them!

  7. “never really recovered” until the controls were abolished, of course, in 1979. It’s still astounding to me that they were allowed to last decades.

  8. @CHF:
    Capital controls were abolished because they conflicted with the Treaty of Rome. I haven’t watched the video referred to in this post, but other videos by NEF have been supported by the EU, as credited at the end of the video. Does the EU know that it is supporting an organization which opposes EU policy?

  9. Tim,

    Everything I’ve read about the Asian banking crisis of ’97/’98 has suggested that it was capital controls that saved Malaysia.

    However, in another sense aren’t they really a form of protectionism for banks?

  10. Pingback: In 2008 the IMF said unfettered flow of capital is a good thing; now they want to fetter the flow of capital |

  11. “Everything I’ve read about the Asian banking crisis of ’97/’98 has suggested that it was capital controls that saved Malaysia.”

    Saved it from what? I lived in Malaysia during this period and you can still see the skeletons of part build projects all around KL today.

    They where still hit very hard, no different to any of the other countries around them. The recovery was a little faster than, say, Thailand, but Thailand got hit badly by the tsunami just as the recovery was underway/

    A lot of the ‘glowing’ reporting of the success of the currency controls is far more about eulogising Mahathir rather than actual fact. Many Malaysians though the crises was an actual attack on the country to bring Asians down.

Leave a Reply

Your email address will not be published. Required fields are marked *