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Capital Controls' Impact on FX and International Trade

By Frances Coppola

Businesses engaged in international trade typically prefer the freedom to move capital between any two countries in order to optimize their operations – and opportunities. Although the consensus among economists has been that capital controls can be economically damaging, individual countries sometimes find it necessary to apply them in order to manage their domestic economies. For many nations, these controls have been vital to stabilizing financial volatility and uncertainty, and have occasionally staved off complete economic collapse.

In this four-part series, financial journalist Frances Coppola, regularly featured in the Financial Times, The Economist, Forbes, and a range of other financial industry publications, discusses the effect of capital controls and how several countries — including Greece, Cyprus, China, and India — have used them to ward off crises.

 

How Capital and Exchange Controls Affect International Trade

 

Following recent use by Iceland, Cyprus, and Greece, there is now growing acceptance that capital controls can help protect national economies from severe financial shocks while maintaining international trade. However, their use in mature economies remains relatively rare. Read Article…

 

Capital Controls in the Eurozone: Restricting International Trade to Preserve It

 

Capital controls restrict free movement of goods and services, but sometimes they can prove to be the lesser of alternative "evils." For Cyprus, a combination of capital controls, a major bank bailout, and an International Monetary Fund program contributed to an economic collapse. But for Greece, although capital controls hampered international trade, they were preferable to a disorderly exit from the euro and were necessary to preserve it. Read Article…

 

How China's Capital Controls Help Manage its Foreign Exchange Rate

 

China's recent controls have principally affected domestic businesses and households. However, foreign businesses may face uncertainty in international trade with China if authorities continue to use capital and exchange controls to manage the yuan's exchange rate. Read Article…

 

Impact of India's Capital Controls on International Trade

 

India has used capital controls to manage international trade in a "goldilocks zone", which promotes business while hedging risk from capital flow instability. But that approach can sometimes translate into volatility for international businesses. Read Article…

 

Frances Coppola - The Author

The Author

Frances Coppola

With 17 years' experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.

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