Given recent instability in East Asia Latin America and Russia does the world need capital controls
During the past few years economic markets have been collapsing across the world. East Asian markets collapsed in 1997 and Latin American economies collapsed at the end of 2001. But does that mean that capital controls need to be re-introduced. Since the end of capital controls in 1971, many markets have collapsed leading to devastating consequences to the poorest of people. This essay is going to examine what capital controls are and the arguments for and against introducing a new set of capital controls on the financial markets and the world in general. Capital controls were introduced after the Second World War during the Bretton woods agreement. In order to stop another depression and bring about peace and stability, world leaders decided to introduce an economic policy of capital control. ... In August 1971 Nixon, due to the balance of payments deficit, decided to remove the US gold backing from the dollar ending capital controls. ... Capital controls are a means of governments restricting the movement of capital across their national borders. The theory is that imposing capital controls will give an economically troubled country time to reform and stabilise. The present system of no capital controls allows governments to “adopt whatever exchange-rate policy they wish providing that they do not peg their currencies to the value of the gold. ... By having a monetary system without controls the government has more power to intervene and influence the economy. ... ” As recently as 1997, there was considerable agreement amongst economists that full capital account liberalisation was beneficial, and that the IMF should pursue it explicitly as one of its aims.