The Siren Song of Capital Controls
Capital controls are back in vogue, winning favor with several emerging-market governments and even an endorsement from the IMF. But capital controls remain a bad idea, and there is good reason to see inflows into emerging markets as an opportunity to strengthen domestic capital markets, rather than as a threat to financial stability.
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ITHACA, NEW YORK – Capital controls are back in vogue. Facing sharp currency appreciation and fearing asset-price booms fueled by hot money, countries such as Indonesia, Korea, and Taiwan have recently taken steps to limit inflows.