Free exchange: An on-off relationship

CAPITAL controls are back in the spotlight, this time on Europe’s northern flanks. To the east, many expect Russia, battered by oil’s plunge, to impose limits on currency conversions to halt the rouble’s fall. To the west, Iceland, at last turning the corner after a painful financial crisis, is planning to ease restrictions that have stopped cash from leaving the island since 2008.That the pros and cons of capital controls can be calmly discussed is progress. Until a couple of years ago, they were the bastard children of economic policy. Guardians of the established order refused to acknowledge their usefulness. But used they were, particularly in emerging markets. Then, in 2012, the once-unthinkable happened: the International Monetary Fund bestowed its blessing on them “under certain circumstances”.What the appropriate circumstances are, however, remains a matter of dispute. Orthodox economics holds that capital controls are usually harmful to growth, because, much like barriers to trade, they breed inefficiency: those with excess cash cannot lend it to those who could use it best. But crises in Mexico and Asia in the 1990s made clear that a sudden…

Link to article: www.economist.com/news/finance-and-economics/21636082-counter-cyclical-capital-controls-are-great-theory-less-useful?fsrc=rss%7Cfec

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