We can’t really call them capital controls, or even quasi-capital controls. Can we call them capital curbs? Capital management?
Perhaps we can call them Claytons controls, after the nonalcoholic drink that was popular in the 1970s and 1980s for its slogan: “The drink you have, when you’re not having a drink.”
Asian nations aren’t calling their recent actions “capital controls,” and the measures being taken certainly aren’t draconian; so far this year it’s mostly been rhetoric from authorities, about watching hot money flows, while there have been modest steps in Taiwan, South Korea and Indonesia to make it a bit harder for people to move money around.
But it is clear that authorities are growing more anxious about how fast money can come in–and out–of their countries.
It’s not so much the fact that funds are shifted, or indeed how much money moves around, that is the worry; what is key is the velocity with which that cash moves.
Asia has been particularly sensitive to that issue, even though it’s more than a decade since the regional financial crisis which brought speculative attacks on several currencies.
Authorities however are also mindful of the risks involved in severe capital controls, having seen action in places like Thailand backfire badly. They are aware as well their economies and banking systems are much less vulnerable than a decade ago.
Indeed, Asia has been a leading light as economies in Europe and the U.S. continue to languish and as Europe wrestles with the continued question of whether there is another Greece lurking somewhere in the euro-zone.
As well, central banks in Asia have more comfortable foreign exchange reserves, with more U.S. dollars on hand to sell in case they need to prop up their currencies, were hot money to rush out. They can also continue to buy dollars to keep a lid on their currencies if hot money flows in.
While Asian governments are probably a little concerned about the chance of a mass exodus of hot money from emerging markets, should there be a further deterioration of things in Europe, they are not about to panic.
We may get more warnings about excess funds being parked by foreigners in onshore accounts, or in short-term instruments (bonds or more liquid stock markets like in Korea). We are also likely to see targeted steps that are implemented gradually to try and divert money into longer-term assets.
Watch for action from India and perhaps Taiwan. But don’t expect anything too aggressive. It will be a round of Claytons controls.