Capital Control

AAA

DEFINITION of 'Capital Control'

Any measure taken by a government, central bank or other regulatory body to limit the flow of foreign capital in and out of the domestic economy. This includes taxes, tariffs, outright legislation and volume restrictions, as well as market-based forces. Capital controls can affect many asset classes such as equities, bonds and foreign exchange trades.

Tight capital controls are most often found in developing economies, where the capital reserves are lower and more susceptible to volatility.

INVESTOPEDIA EXPLAINS 'Capital Control'

Capital controls are the subject of much debate; some feel that they inherently limit economic progress and efficiency while others see them as prudent, adding a measure of safety to the economy. Most of the largest economies have a liberal policy of capital control, having phased out stricter rules from the past. But most of these same economies have basic stopgap measures in place to prevent against a mass exodus of capital (outflows) during a time of crisis or a massive speculative assault on the currency.

Global factors, like globalization and the integration of financial markets, have contributed to an overall easing of capital controls. Opening up an economy to foreign capital generally allows for companies to have easier access to capital, and can raise overall demand for domestic stocks.

RELATED TERMS
  1. Tariff

    A tax imposed on imported goods and services. Tariffs are used ...
  2. Balance Of Payments (BOP)

    A record of all transactions made between one particular country ...
  3. Most Favored Nation Clause

    A level of status given to one country by another and enforced ...
  4. Protectionism

    Government actions and policies that restrict or restrain international ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. Globalization

    The tendency of investment funds and businesses to move beyond ...
RELATED FAQS
  1. What does the law say about non-U.S. citizens buying stocks of U.S. companies? Are ...

    The law is very fuzzy on the matter of who may own U.S. securities and for what purpose. The U.S. follows the common law ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Broadening Your Portfolio's Borders

    Find out what type of international fund might suit your needs in gaining exposure to foreign markets.
  2. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  3. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  4. Personal Finance

    What Are Central Banks?

    They print money, they control inflation, and much, much more. All you need to know about central banks is here.
  5. Forex Education

    The New World Of Emerging Market Currencies

    Take advantage of foreign currency markets without stepping out of your house.
  6. Economics

    What Is An Emerging Market Economy?

    Emerging markets provide new investment opportunities, but there are risks - both to residents and foreign investors.
  7. Economics

    What is the Income Effect?

    In economics, the income effect is the change in the consumption of goods caused by a change in income, whether income goes up or down.
  8. Economics

    Asian LNG Prices: Not Likely To Rise Anytime Soon

    Asian LNG prices could stay low for an extended period of time, due to low oil prices, less demand and new LNG-producing projects on various continents.
  9. Economics

    Bulk Shipping Companies Struggle As Markets Soften

    The "soft" dry bulk shipping market that confronts shipping companies is a result of lower demand from China, and an excessive amount of bulk ships.
  10. Economics

    Venezuela Teeters On Edge As Oil Revenues Shrink

    Low oil prices have drastically revised the economic status quo -- dealing a destabilizing blow to oil-exporters like Venezuela due to falling oil revenue.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center