Capital Restrictions: Classification and General Observations

Abstract

Although capital controls have formed a major instrument for the monetary authorities in the conduct of economic policy, they have not received the same degree of intellectual attention as many of the other policy instruments. There is a substantial range of academic literature on capital controls. Still it is a mere trifle in comparison to the vast bulk of literature on specialized subjects such as trade restrictions or tax incentives. One of the explanations may be that the use of capital restrictions, while having redistributional effects, generally has not been regarded as having negative allocation and growth effects of a magnitude in any way comparable to trade restrictions or tax incentives.¹ Another explanation may be that capital controls have not been a generalized phenomenon in industrial countries in the post-World War II period. Moreover, shaped by tradition and the country-specific institutional set-up of the financial System, restrictions have taken manifold forms and were often camouflaged in complex administrative rules.

Private financial markets have become internationalized much more rapidly and completely than other economic and political institutions. That is why we are in trouble.

James Tobin, 1978

There may have been some cases of unwarranted speculative attacks on some currencies, although I find it difficult to think of conspicuous examples, while it would be easy to cite many examples where the speculators were right and the authorities dead wrong.

Gottfried Haberler, 1976