Rebranding Capital Controls During the Global Crisis
Several factors have facilitated the resurrection and legitimation of capital controls during the global crisis. In the interests of clarity, I discuss these factors separately in what follows, even though I see them as fully interdependent and cumulative.
Increasing State Autonomy in the Global South and East
Dismal experiences with the IMF, especially during the Asian crisis, led policymakers in the developing world to pursue strategies that would minimize the chance of future encroachments on their policy autonomy. The chief way in which this goal was operationalized was through the self-insurance provided by the over-accumulation of currency reserves. Self-insurance strategies collectively promote resilience and even what Nassim Taleb (2012) refers to as ‘anti-fragility,’ or the ability to thrive in periods of instability. This strategy of building anti-fragility was validated during the first many years of the global crisis.
Between 2000 and the second quarter of 2013, developing and emerging economies added about US$6.5 trillion to their reserve holdings, with China accounting for about half of this increase (Prasad 2014a). Emerging and developing economies (with reserves of US$7.7 trillion in 2014) accounted for 72 percent of the increase in global reserves between 2000 and 2014 (IMF COFER, author calculation).
The resources held by a group of developing countries help to create an environment wherein policymakers have the material means to enjoy increasing policy autonomy relative to the IMF. Not least, this has meant that policymakers have been able to deploy capital controls without worrying about negative reactions by the IMF or investors. The resilience and even the anti-fragility and the policy space created by these resources may prove essential if current turbulence intensifies.