Capital control – these are any means by which the government, central bank or other financial body can regulate the flow of funds in or out of a given country.
Taxes on transactions, volume restrictions, tariffs on income and exports, as well as minimum stay requirements are all examples of monetary policy instruments that can be implemented by the state to ensure greater control over its economy in difficult times.
Controlling the outflow of capital is one that is designed to prevent citizens from acquiring assets abroad, while the other is to control foreign speculators from buying up domestic assets, known as controlling capital inflows.
Such measures can be general economic or used to target specific industries or sectors and are most often used to support a balancing financial system or currency under duress.
While liberal free market economists have previously considered such controls regressive and detrimental to economic growth, a series of catastrophes from the Latin American debt crisis of the early 1980s to the East Asian financial crisis of the late 1990s demonstrated the dangers of volatile capital. currents and caused a revisionist reassessment of the merits of the practice.
Recent examples of capital controls deployed to restore stability include Iceland between 2008 and 2017 in response to the collapse of the banking system during the global financial crisis and in Greece between 2015 and 2019, when the country was gripped by a European sovereign debt crisis.
Now the principle is demonstrated in Russia where Moscow’s central bank has been forced to conduct exercises to limit damage in response to the difficult economic situation sanctions imposed by foreign governments on banks, corporations and wealthy individual oligarchs as punishment for Vladimir Putininvasion of Ukraine.
The value of the Russian currency, the ruble, has historical lows in response to spontaneous agitation.
As an amendment, Russia’s central bank has announced that its key interest rate will more than double from 9.5 percent to 20 percent to counter the threat of rapid depreciation and rising inflation that is eating away at citizens ’savings.
“External conditions for the Russian economy have changed dramatically,” – said in a statement the bank, to put it mildly, and adds that he expects that the increase will “ensure” rising interest rates on deposits.
It also introduced a number of capital controls, including requiring companies to convert 80 percent of their foreign exchange earnings into rubles, expanding the range of securities that can be used as collateral for loans, and temporarily banning Russian brokers from selling securities owned by foreigners. – potentially thwart the plans of the sovereign wealth funds of Norway and Australia to reduce their interaction with Russian business.
This came after the central bank announced the resumption of buying gold in the domestic market, launching an auction of unrestricted buyouts and easing restrictions on banks ’open currency positions.
Russian Finance Minister Anton Siluanov also said the Putin government was ready to strengthen the capital base of commercial banks if necessary.
The central bank itself became a target in the West’s response to Ukraine’s outrage as political leaders from the US, EU and UK sought to limit its ability to deploy its £ 470 billion in foreign exchange and gold reserves. disconnection of major Russian banks from the Swift financial networkwhich makes it difficult for creditors and businesses in the country to make and receive payments.
While Russia insists that its banking system will operate normally and citizens will be able to use their credit and debit cards as usual, bank launches have already begun over the weekend as people stand in line at ATMs trying to hastily withdraw cash from their accounts in the event of a shortage.
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