Capital controls

May 12, 2015
I got to participate in a discussion on capital controls, sponsored by Samtök Atvinnulífsins which could be translated as the Icelandic Chamber of Commerce. The event was held in the lovely Harpa. If you read Icelandic, the writeup is here with my slides.

The Icelandic controls

The Icelandic capital controls are of the outflow variety, preventing money from leaving rather than the more popular hot money inflow type. I wrote about them on VoXEU a few years ago “Capital controls are exactly wrong for Iceland”.

The time is always right

While there was some disagreement, all agreed that the controls should be lifted eventually. But we disagreed on the timing. I maintained that they’re quite costly and that the the time is always right to abolish them. One might be afraid of the consequences, but the krona is just as likely to appreciate as it is to depreciate when they are abolished.

Some got upset by the fifth slide, where I said that by maintaining the capital controls, Iceland was in the illustrious company of countries that are unable to manage the basic function of the economy, like Cyprus, Venezuela and Argentina. Capital controls make a country look like the village idiot, not the country aspires to be.

Some of the newspapers got somewhat creative in the writeup, like „Ísland er þorps­fíflið“, not quite what I said, but amusing.