{"id":19820,"date":"2013-03-26T07:03:02","date_gmt":"2013-03-26T07:03:02","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/?p=19820"},"modified":"2013-03-26T07:03:02","modified_gmt":"2013-03-26T07:03:02","slug":"cyprus-brings-a-welcome-return-to-capital-controls-something-weve-needed-for-a-long-time","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2013\/03\/26\/cyprus-brings-a-welcome-return-to-capital-controls-something-weve-needed-for-a-long-time\/","title":{"rendered":"Cyprus brings a welcome return to capital controls, something we’ve needed for a long time"},"content":{"rendered":"

As is\u00a0noted\u00a0in the FT this morning<\/a>:<\/p>\n

Cypriot lawmakers have passed a bill that paves the way for\u00a0capital controls<\/a>. The legislation allows Cyprus\u2019s government to introduce limits on transfers of bank deposits and cash withdrawals. It gives considerable discretionary powers to the state. Neither the European Central Bank nor the European Commission prevented the move. Both deemed it necessary to avoid uncontrolled outflows during the renegotiation of the island\u2019s bailout deal. But the eurozone has now embarked on a process that endangers both the currency area and the single market.<\/p>\n

The most important characteristic of a monetary union is the ability to move money \u2014 without any restrictions \u2014 from one bank to another in the currency area.\u00a0With capital restrictions<\/a>, the value of a euro in Cyprus is no longer worth the same as a euro held by any other bank in the eurozone. A euro in Nicosia cannot be used to buy goods in Frankfurt without limits. Effectively, it means that a Cypriot euro is not a euro any more.<\/p><\/blockquote>\n

That's true. And the circumstances make it seem as if this was a deeply retrograde move. According to the economic mantra it is, of course. That mantra says that capital must move wherever it\u00a0will\u00a0to maximise its return. The whole of the EU is\u00a0built\u00a0on that idea.<\/p>\n

But that idea is wrong: if capital can roam as it will then a state cannot control its currency if it has one. Nor can it be in control of its interest rates. Or its tax revenues. Free roaming capital challenges the right of the state to manage its economy in the interests of those who democratically elected it.<\/p>\n

And those who do vote undoubtedly lose out from the impact of free-roaming capital. When capital roams and by and large\u00a0people\u00a0don't the rate of return to capital increases and the rate of return to labour falls. If you want a\u00a0simple\u00a0explanation as to why the real wage rate has been frozen,\u00a0near\u00a0enough, for more than\u00a0thirty\u00a0years (the precise era of capital market freedom)\u00a0whilst\u00a0that of bankers, free-riding on the back of capital, has sky-rocketed\u00a0that\u00a0is it.<\/p>\n

Capital controls are then to be welcomed. They are an\u00a0essential\u00a0control on the destructive power of capital.<\/p>\n

If there had been\u00a0capital\u00a0controls there would have been no Cypriot crisis.<\/p>\n

There would have been no banking crisis in 2008.<\/p>\n

There would be, at most, a very small tax haven problem.<\/p>\n

And I argue the world would be better off because much of the supposed growth in the world that capital freedom gave rise to has\u00a0benefited\u00a0a few and not the many, and more than that, it's helped\u00a0destroy\u00a0our environment on the way as anything and everything that can be traded has been.<\/p>\n

The markets will say capital\u00a0controls\u00a0are a threat. They are right. Capital controls are a threat to the abuse permitted by unregulated markets, but for everyone else today might be a cautious step towards a fairer, more\u00a0sustainable\u00a0world.<\/p>\n","protected":false},"excerpt":{"rendered":"

As is\u00a0noted\u00a0in the FT this morning: Cypriot lawmakers have passed a bill that paves the way for\u00a0capital controls. The legislation allows Cyprus\u2019s government to introduce
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