capital control, exchange rate regulation #basics

Treat the currency of a country (say JPY) as paper money or electronic money. Capital control attempts to monitor and regulate the outflow of every JPY.

Electronic flow is probably easier to regulate. I think all the electronic systems are operated by heavily regulated agencies.

Outflow can be conversion of JPY 1mil into EUR.
Outflow can also be fund transfer into a JPY account in Brazil, without currency conversion.

Case in point — FDI often brings in foreign currency, invest, profit (in local currency)… then they want to bring the profit out of the country — outflow. They need to convert or transfer.

To be effective, the system also needs capabilities to stop a particular outflow when necessary.

Q: how effective is capital control?
A: quite effective

Q: what are the capital outflow avenues for corporations (foreign or domestic)?
A: usually through banks. It’s easier and more effective to regulate banks than corporates.

Q: what are the capital outflow avenues for individuals?
A: for small amounts they can change with friends, but large amounts often go through regulated agencies.

Q: what are the capital outflow avenues for crime gangs?
A: murky underground tunnels.

Q: how many loopholes?

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