Towards capital controls in emerging markets?

This once was a taboo. The slowdown of economic growth and the fall in financial markets in China prompted world finance to envisage solutions which once were deemed useless at best, if not counterproductive. In addition to trade halting twice of these markets by the Chinese government without much protest on behalf of free market supporters, has been spreading the idea of capital controls in China.

The main reason behind this would be the larger than expected capital flight from emerging markets, up to $735 billion in 2015 and around $140 billion for December 2015 only. Against this backdrop, the worst in 15 years according to the Institute of International Finance (IIF), the BOJ’s governor Haruhiko Kuroda suggested Beijing impose new capital controls to investors. “In this kind of somewhat contradictory situation, capital controls could be useful to manage the exchange rate, as well as the domestic monetary policy, in a consistent and appropriate way,” Kuroda said in Davos days ago.

Asked about it, IMF chief Christine Lagarde preferred to stress on the need for “clarity, certainty, one message,” from Chinese authorities whose, Lagarde said, latest macro-prudential measures were justified. The issue is that markets have not reacted positively to these measures, taking them as confirmation of their fears instead. The Chinese authorities’ massive intervention hasn’t brought the expected results so far. Errare humanum est, perseverare diabolicum.