Why capital controls are getting harder to enforce

Here is one lesson, involving Venezuela and Curacao, via William Griffiths. 

The "card thing" is an intricate scheme involving local merchants, Socialist bureaucrats, Venezuelan travelers and middlemen.

Trying to slow capital flight, Venezuela limits its citizens to
$5,000 in annual credit card purchases abroad. That is 10,750 bolivars,
at the official exchange rate of 2.15 to the dollar. But at the
prevailing black-market rate of 4.5 to the dollar, the amount more than
doubles to 22,500 bolivars.

Seizing on that gap, some Venezuelans began coming to Curaçao’s
casinos last year and using their credit cards to buy chips. They then
played a few hands and cashed in the chips for dollars, which circulate
here along with guilders.

Dummy receipts are available too.  So, I am puzzled by the generality of Dani Rodrik’s defense of capital controls.  Internet commerce alone should mean that most capital controls aren’t easily enforced.  True, not everyone has access to large-scale transactions on the internet, or some companies may be too big and respectable to try to sneak money out of the country this way.  But if the enforceability of capital controls is relying on such imperfections in individual optimization, I would suggest that the idea, if it ever made sense in the first place, doesn’t have much of a future.


Comments for this post are closed