Why would a central bank impose controls on money flowing in? Because this will raise the market price of francs in relation to euros. The central bank is dominated by mercantilist thinking. A rising currency is seen as a liability. Why? Because exporters are hit by the falling value of the foreign currency. Foreigners must pay more to buy francs to buy Swiss goods.
Most nations that have ever imposed capital controls have imposed them on the "outflow" of money. I put "outflow" in quotation marks, because there is no outflow of money.
Digits do not flow across borders the way that goods and people do. Ownership of digital accounts in one nation's banks get traded for digital accounts in foreign nations' banks. The money supply does not change. What changes are the owners of the digits on the various bank accounts. Ownership of digital money shifts. The people trying to exchange dollars for some other currency must find sellers of that currency who are willing to sell. But the total amount of dollars in domestic bank accounts does not change, nor does the total amount of foreign currency digits in foreign bank accounts. Central banks and fractional reserves establish the domestic money supply. Foreign exchange markets do not. This is not widely understood.
To try to stop the shift in owners of U.S. dollar accounts, the government could impose export controls in the form of taxes on dollar transfers of ownership. Or the government could declare it illegal for holders of dollar accounts in American banks to exchange ownership for non-dollar accounts in foreign banks.
Could this happen here? One of my subscribers posted these questions:
How likely is it we will see capital controls put in place prohibiting financial assets from leaving the U.S.? If that happened, how might this damage one's personal wealth remaining in the U.S.? What is the likelihood of a forced repatriation order mandating the return of off-shore assets to the U.S.? It has been reported that: "Just this week, two of the most powerful U.S. congressmen – Barney Frank and Sander Levin – released a letter they'd sent to U.S. Treasury Secretary Tim Geithner, expressing their concerns over future U.S. free trade agreements if the government doesn't address capital controls. The headline of the letter is: Frank and Levin Call on Administration to Clarify Position on Capital Controls. Frank and Levin have long been concerned that the language in U.S. trade and investment treaties was too restrictive and did not leave adequate flexibility for governments to use controls to stem the massive flows of speculative capital that can exacerbate economic crises. The congressmen specifically state they want additional power to restrict the flow of capital into and out of the United States... their letter stated: We request an official written statement of U.S. policy on the Administration's interpretation that the scope and coverage of the 'prudential exception' in U.S. free trade agreements and bilateral investment treaties grants parties the ability to deploy capital controls on the inflow or outflow of capital without being challenged by private investors." It seems capital controls will be implemented, although I am not real clear what damages to personal wealth this will cause. Also, what is the probability of a forced repatriation order? If the government goes that far we can be sure it would be very damaging to one's assets.read full article here Are Capital Controls Coming to America? by Gary North
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