Capital Controls
Government-imposed restrictions on the flow of money and investments across a country's borders, used to manage exchange rate stability and financial crises.
What is Capital Controls?
Capital controls are regulatory measures imposed by governments or central banks that restrict or regulate the movement of capital into or out of a country. They range from outright prohibitions on converting local currency into foreign currency, to taxes on capital inflows, to limits on foreign investment in domestic assets. Capital controls are used to stabilize exchange rates, prevent speculative attacks on a currency, manage inflation, and reduce financial contagion during crises. Critics argue they distort markets and deter long-term investment; proponents contend they are legitimate tools for protecting smaller economies from the destabilizing effects of volatile international capital flows.
Example
During the 2015 Greek debt crisis, the government imposed capital controls limiting bank withdrawals to €60 per day and restricting transfers abroad to prevent a catastrophic bank run. Iceland used capital controls from 2008 to 2017 following its banking collapse, gradually removing them as financial stability was restored.