Article Image 28508

The Money Cloud explains: capital controls

Free trade allows the flow of money from places that have it to places that need it – places of opportunity. That’s the theory. However, in 2010 the IMF, historically free trade’s staunchest defender, conceded that government intervention in markets and trade through capital controls could be justified. That debate has come to the fore again in 2015, as Greece has used them to stop its economy from spiralling out of control. We look at what capital controls are, when they’re used, and how they impact international money matters.

What are capital controls?

Capital controls are steps taken by governments or regulatory bodies (like central banks) that cap the movement of foreign money in and out the economy.

These could include taxes, transfer limits and even laws, and can be applied to any number of asset types, including currency, shares and bonds.

When are they used?

The succession of market crashes from the Asian financial crisis of the '90s to the Greek crisis today has changed attitudes. There’s now a renewed belief that governments need to stop too much money flooding the economy during boom years and flowing out of the economy during a crisis.

For example, when Brazil’s 2009 exit from recession was followed by a rush of investors, the government started taxing purchases of shares and bonds from abroad to avoid a bubble. 

Greece also recently imposed capital controls to avoid money flowing out of the country while it waited for further bailout payments. They included a €60 bank withdrawal limit and a ban on currency export.

What’s the real impact?

Many economists now believe that they have a time and a place, but results are mixed and contested.

One consequence that's clear is how capital controls reverberate around the wider international money market:

  • Volatility. Countries like Brazil claim their lighter capital controls prevented an unsustainable bubble. They also say that tax revenue cushioned the impact of the later investment exodus.
  • Economic crisis. By limiting the ability to send money abroad, the Greek government crushed small businesses reliant on imported supplies.

Perhaps the biggest impact for the ordinary consumer is on international money transfer. Capital controls affect where you can send your money, as well as how much you'll get for it. Working with a trusted broker who can advise you on any changes you should know about it is an important first step towards limiting that impact. To find the right one for you, use our transparent comparison tool today.

Comparison tool

Felicity Liebmann

Used your service last week to get travel money from ICE and it all worked beautifully. Very efficient and easy, the cash arrived when it was due so there was no hanging about waiting or anxiety about it not arriving when promised.

Chloe Rogers

Your site is top, thank you. I was going to use my bank and but came across you on Forbes site, I am glad I did. I went on and used Torfx very good service got the rate right, saved me money compared to many others you list, they even helped me get an aussie bank account. Once again thank you for help!
Purchasing overseas property - satisfying your currency needs for payment

EMIGRATING - TRANSFERRING YOUR ASSETS OVERSEAS

Moving overseas can be daunting, with many unexpected aspects to your move you might not have considered. We cover all the financial basics of moving abroad, from the expenses to consider to the most cost-efficient ways to transfer your bank accounts and financial assets to your new home.

purchasing overseas property

OVERSEAS PROPERTY PURCHASES – SAVE ON YOUR PAYMENTS

Explaining how you can make considerable savings by getting better exchange rates and low fees associated when purchasing a property overseas. We show you how to make considerable savings, avoiding poor exchange rates, high fees and the best time to make the transfer.

Market Insights

Sign up for our newsletter.

Thank You for subscribing to our Newsletter

You have successfully signed up to our Newsletter