Summary of Guilt by Association

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Policies that regulate money moving into or out of a country’s capital markets have a bad reputation. Critics emphasize misgivings about capital controls without discerning whether they regulate incoming or outgoing funds. Indeed, curbs on capital outflows – often associated with authoritarian states – can constrain trade. Yet subduing influxes of speculative “hot money” can prevent debt bubbles. This cogent article from economists Atish Rex Ghosh and Mahvash Saeed Qureshi analyzes the pros and cons of sovereign capital controls in each direction and makes a strong argument for properly administered inflow regulators as tools for macroeconomic stabilization. getAbstract recommends this article to policy makers and others interested in the effectiveness of capital controls.

About the Author

Atish Rex Ghosh and Mahvash Saeed Qureshi are professionals at the International Monetary Fund.



By the early 21st century, distinctions between inflow and outflow capital controls had become blurred in the eyes of policy makers, who tend to abhor all controls. The aversion is historically well grounded in the experiences of nations restricting outbound money flows. Autocrats taking desperate measures to salvage failing economies have imposed severe exchange regulations and other limits on outflows, such as on imported goods. In particular, the 1924 Dawes Plan opened the gates for loans by US banks for German reparations and European reconstruction following World War ...

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