Russia Could Enforce Capital Controls To Stop Outflows

As the scale of funds being pulled out of Russia became clearer this week, market speculation has increased that the government may have to impose some form of capital control to halt the flight of investment.

The outflows are likely to reach $65-70 billion, much higher than previous estimates, according to Andrei Klepach, the deputy economy minister. The Bank of Russia last week ruled out capital controls “at this time.”

Controls on the free flow of capital are usually imposed by emerging economies at great risk of losing investment flows because of an economic crisis. They can mean everything from limiting how much money can be moved out of a country to higher taxes on investments outside the country.

In recent years, countries which have employed capital controls to deal with investment flight include India, Brazil and Thailand.

While it is possible Russia may employ similar tools if capital outflow continues to worsen, most economists and analysts are discounting it at the moment.

“They know that this will undermine the real economy ultimately,” Tim Ash, head of emerging markets research at Standard Bank, told CNBC. “Russians are clever at devising schemes to get around this kind of thing,” he added.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza