What are capital controls?
Capital controls restrict the free movement of capital. Countries use these controls to restrict volatile movements of capital entering (inflows) and exiting (outflows) their country. These increased volatile movements in capital can be attributed to the expanding global economy and a countrys willingness to liberalize its financial system by allowing free convertibility of its currency. Analysts say currency convertibility has normally been allowed to finance current trade and direct investment transactions. Only recently has currency convertibility also been allowed in the capital account. By introducing this capital account convertibility, countries expose themselves to autonomous inflows and outflows of funds (capital) by foreigners and locals, thus subjecting their currency to speculation and exchange rate volatility. Restrictions can be placed on capital inflows and outflows. The IMF report states that most countries impose controls on inflows to respond to the macroeconomic impl
