Capital controls

Capital controls are government restrictions on cross-border transactions involving money or financial assets. They can limit, tax, or require approval for transfers, investments, and foreign-exchange transactions.

Foreign exchange controls: Rules restricting the purchase, sale, or transfer of foreign currencies. Currency conversion limits are a direct way to control cross-border capital.
Capital account crisis: A financial crisis driven by sudden reversals or disruptions in cross-border capital flows. Temporary controls may be used to contain destabilizing outflows during a crisis.
Capital account liberalization: The removal of restrictions on cross-border financial transactions. Liberalization reverses the policy direction of capital controls.
Monetary policy autonomy: A government's or central bank's ability to set monetary policy for domestic objectives. Restricting capital mobility can make domestic interest-rate choices more independent.
Financial transaction tax: A tax levied on transactions involving financial instruments. Transaction taxes can raise the cost of moving funds across borders.
Asian financial crisis: The 1997–1998 regional financial crisis marked by currency collapses, capital reversals, and banking distress. Malaysia imposed controls during the crisis to limit outflows and stabilize policy.
Financial globalization: The integration of national financial markets through cross-border investment and lending. Capital controls limit one channel through which financial globalization operates.
Capital allocation: The distribution of financial resources among investments, firms, and economic activities. Controls can redirect funds toward domestic uses but may weaken efficient investment decisions.
Unremunerated reserve requirement: A rule requiring some foreign borrowing to be deposited at a central bank without interest. Chile used this mechanism to discourage short-term inflows without banning them.
Malaysia capital controls: Malaysia's 1998 restrictions on offshore ringgit trading and capital repatriation. This prominent case tested whether controls could restore domestic policy room.

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