Capital control

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Capital control is the monetary policy device that a country's government (i.e. sovereign power) uses to regulate the flow of investment-oriented money into and out of a country or currency. General sentiment about capital controls has changed in the recent decade since the Asian Currency Crisis in 1997-1998. Originally, as the march of globalization began to really get underway with the formalization of the World Trade Organization and the Uruguay Round of General Agreement on Tariffs and Trade (GATT) during President Bill Clinton's tenure, it was thought and in fact urged by the International Monetary Fund and others, that developing countries needed to liberalize their capital controlled environments and embrace the free flow of capital coursing throughout the global economy.

As it became clear that countries doing this, including Malaysia, Thailand and Mexico, essentially ceded control of their economies to external forces, namely whimsical capital movements, hot money and capital flight, and the United States Federal Reserve, and countries that did not, like China and India, retained control and were not nearly as vulnerable to the volatility of whimsical capital movement, the logic began to turn, to the current logic that capital controls are advisable for smaller economies to use, and to transition away from them only over long, general evolutionary timelines. Malaysia is but one example of a country that switched regimes, from open in the late 1990s, to closed following China's model, realizing that its financial institutions and general corporate environment was not yet ready for unadulterated exposure to the blistering competition coming from the powerful economies like the United States, United Kingdom and Japan.

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