Balding on Capital Controls: Won't Work

Bloomberg: Capital Controls Aren't the Answer for China

He goes into much more detail here: Follow Up on why Capital Controls Isn’t a Good Idea for China. The post is very long, but hits a lot of good points.

The one area I might quibble is there are some folks arguing hot money is in play, something Balding dismisses, although this isn't the typical form of hot money: Why the Yuan Must Devalue: $700 Billion in Short-Term Loans Betting on Yuan Appreciation & Rate Arbitrage; One-Third of Reserves Is Hot Money. That said, capital controls cause more problems even in this case.

An overlooked reason to oppose capital controls is the impact on the people. As Balding points out (and even the hot money argument argues) the capital outflows are driven by Chinese, not foreigners. Capital controls will be perceived as terrible news by Chinese citizens who think they should have more economic freedom, not less, who believe the renminbi is gaining in international acceptance. Particularly when you consider the most recent propaganda push was to have the yuan added to the SDR basket.

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