Capital Controls

1 min read

Capital controls are any regulations that restrict the way residents can move money in or out of a country. This could be a tax or tariff on foreign transactions, or an outright limit on how much money can be moved in a certain direction. These policies are normally implemented by a government of a central bank. The most common application is propping up a failing currency by restricting capital outflows.

Capital controls are most common in developing or unstable economies with unsound money. The regulations help maintain a steady balance of imports and exports and also prevent runs on domestic banks. However, capital controls can be detrimental to residents who have restrictions on their financial transactions. Assets such as Bitcoin, which are subject to less government regulation, are commonly used to bypass capital controls.