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Noah Smith

Capital Controls Are Becoming Disturbingly Popular

There are reasons for countries to worry about too much foreign investment, but regulation could be a cure that's worse than the disease.

Let it roam free?

Let it roam free?

Photographer: Safin Hamed/AFP/Getty Images

In the late 20th century, economists generally accepted the notion that financial capital should be allowed to flow freely between countries. But economists are beginning to question this consensus. That could lead to less open financial and currency policies around the world, or herald the coming of a new global monetary order.

There are a number of reasons that free capital movement became a popular policy prescription. Economists believed that international investment made countries’ domestic financial systems more efficient and sophisticated, transferring ideas from abroad and subjecting local banks and markets to competitive pressures. These improved financial systems would do a better job of allocating capital to where it needed to go — and, in the process, improving productivity, investment efficiency and growth rates.