Are Capital Controls Coming to America?
by Gary North
Are capital controls coming to the United States? They may be for Switzerland, The Swiss National Bank has announced that it is considering the imposition of controls. But these will be controls on euro accounts being shifted into Swiss francs.
Why would a central bank impose controls on money flowing in? Because this will raise the market price of francs in relation to euros. The central bank is dominated by mercantilist thinking. A rising currency is seen as a liability. Why? Because exporters are hit by the falling value of the foreign currency. Foreigners must pay more to buy francs to buy Swiss goods.
Most nations that have ever imposed capital controls have imposed them on the “outflow” of money. I put “outflow” in quotation marks, because there is no outflow of money.
Digits do not flow across borders the way that goods and people do. Ownership of digital accounts in one nation’s banks get traded for digital accounts in foreign nations’ banks. The money supply does not change. What changes are the owners of the digits on the various bank accounts. Ownership of digital money shifts. The people trying to exchange dollars for some other currency must find sellers of that currency who are willing to sell. But the total amount of dollars in domestic bank accounts does not change, nor does the total amount of foreign currency digits in foreign bank accounts. Central banks and fractional reserves establish the domestic money supply. Foreign exchange markets do not. This is not widely understood.
To try to stop the shift in owners of U.S. dollar accounts, the government could impose export controls in the form of taxes on dollar transfers of ownership. Or the government could declare it illegal for holders of dollar accounts in American banks to exchange ownership for non-dollar accounts in foreign banks.