From Argentina to China and India: A Guide to Capital Controls
Argentina may have spooked investors with its imposition of capital controls over the weekend, but it’s scarcely alone among emerging markets in using them to stop money flying out in times of stress.
From China to India, Nigeria and South Africa, investors have largely learned to live with them. Here’s a look at the measures different countries take and how they affect bond and stock investors:
President Mauricio Macri’s administration announced on Sunday that exporters would have to repatriate foreign currency within five days of payment and that companies would have to ask permission from the central bank to buy dollars in the foreign exchange market. Companies must also request authorization to distribute dividends abroad. The move aimed to halt a slump in foreign currency reserves.
The world’s second-biggest economy gradually eased capital controls in recent decades and made it easier to trade the yuan. But it tightened again in 2016 to stop a flood of money leaving the nation, and those restrictions remain. There’s a $50,000-a-year cap on Chinese citizens moving money out the yuan. For fund managers, both inbound and outbound investments in financial assets are subject to quotas, though the stock-link program with Hong Kong offers an alternative. And there are other curbs on everything from overseas takeovers to purchases of insurance policies in Hong Kong.
India has liberalized its capital account in recent years to attract foreign money in the absence of a large domestic savings pool. Foreigners can now buy and sell stocks without any limits, but there is a cap on how much they can invest in rupee bonds. Last week, India eased restrictions on foreign direct investments in sectors such as retail, manufacturing and coal mining. That’s expected to encourage companies from Apple Inc and BHP Group PLC to invest more in Asia’s third-largest economy.
The central bank lifted a currency peg in 2005 and has since taken various steps to improve the accessibility of onshore markets. It’s made it easier for investors to hedge their local-currency investments and provided more flexibility on ringgit transactions involving non-resident financial institutions. One restriction that still exists is a ban on offshore currency trading -- which the central bank has indicated it has no plans to remove.
Africa’s biggest oil producer uses a raft of measures to bolster the naira. The central bank has created a list of about 45 imported items from rice to textiles for which purchases of foreign exchange are banned. Neither are Nigerians allowed to buy dollars to invest in Eurobonds. Foreign investors have faced restrictions in the past, including a rule requiring them to hold government bonds for at least a year, but the central bank has eased them in a bid to attract more inflows from carry traders.
South Africa has one of the most liquid currencies in the world, thanks in part to it allowing foreign portfolio investors to enter and exit the country at will. Locals, however, face several curbs. The Reserve Bank has a complex system of exchange controls that limits the amount of money South African individuals, investors and companies can move offshore. Exporters have to repatriate foreign earnings within six months.
Thailand hastily reversed strict capital controls imposed in 2006 after they sparked a stock-market meltdown, leaving officials wary of repeating the same mistake. The central bank has taken a different tack recently to restrain the baht’s appreciation. The steps include curbing how much non-residents can hold in baht accounts, tightening reporting requirements on foreign holders of Thai debt, and cutting the supply of short-term bonds.
Turkey still has one of the world’s most open capital accounts, and the lira is among the most liquid emerging-market currencies. But over the past year, as households hoard more dollars, the central bank has started regulating foreign-exchange purchases, forced exporters to repatriate some of their hard-currency revenue, and made companies quote contracts only in liras.
Roiled by a pro-Russian insurgency in its east and an economic crisis, Ukraine announced capital controls from 2014. Guided by the International Monetary Fund, Ukraine’s steps included a one-day freeze on all currency trading, the mandatory conversion of export revenue and limits on dollar purchases by households. Most curbs have since been lifted, though there are still limits on purchases of hryvnia loans by foreigners.
©2019 Bloomberg L.P.