Economics Dictionary of ArgumentsHome
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| Capital flight: Capital flight is the rapid outflow of assets or money from a country. It typically occurs due to economic or political instability, such as hyperinflation, high taxes, political unrest, or fear of currency devaluation. This exodus of capital can weaken the domestic economy, reduce investment, and devalue the local currency. See also Crises, Currency crises, Inflation, Economy._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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IMF Working Papers on Capital Flight - Dictionary of Arguments
IMF III 5 Capital Flight/Crypto/IMF/Luckner/Koepke/Sgherri: The decentralized, borderless, and pseudonymous nature of cryptocurrencies has propelled their use to transfer funds across borders, especially amid capital controls, as documented by Graf von Luckner, Reinhart and Rogoff (2023)(1). This has raised concerns among policymakers over the implications for macroeconomic and financial stability (Auer and Claessens, 2018(2); He et al., 2022(3); IMF, 2022a(4), 2021(5); Copestake et al., 2023b(6)). Crypto as a market place for capital flight: At its core, the mechanics of crypto as a marketplace for capital flight are simple. In countries that restrict access to foreign exchange, macroeconomic imbalances and financial stability concerns can lead to excess demand for FX (foreign exchange markets). Residents cannot convert local currency using the official exchange rate and are willing to pay a premium to obtain FX. Typically, crypto exchanges allow residents to convert local currency into crypto, which they can then sell for hard currency on a foreign crypto exchange. The counterparty to this transaction is an agent seeking to make the reverse transaction (e.g. for remittances); or someone with access to FX (often illicit).* By using FX to buy crypto in the global market and selling it domestically, the counterparty can ”earn” an arbitrage premium that the resident is willing to pay. IMF III 6 The domestic crypto exchange thus matches the two counterparties to that transaction, serving as a marketplace for capital flight. A key feature of this marketplace is a crypto FX premium, which balances supply and demand for FX in the crypto market place. This premium can be defined as the price of crypto observed in local currency relative to the price of crypto on the global market (expressed in local currency using the official exchange rate). Other things equal, the greater the excess demand for FX, the higher the premium. Also, the more restricted international transactions are, the higher the premium. The premium is what drives supply of FX to the local market. Since the domestic supply of FX is scarce, additional supply is typically obtained via capital flight (i.e. the evasion of capital controls). As a result, crypto markets reinforce traditional channels for capital flight (such as trade misinvoicing) by making it possible to monetize access to capital flight on the crypto market. >Cryptocurrency, >Cross-border payments, >Money-laundry. * A typical way in which capital flight traditionally takes place is misinvoicing of trade. For example, exporters may underinvoice exports, repatriating only a portion of their export proceeds at the official exchange rate. The remaining export proceeds could then be used to purchase cryptocurrency on the global market. 1. Graf von Luckner, C., Reinhart, C. M., and Rogoff, K. (2023). Decrypting new age international capital flows. Journal of Monetary Economics, 138:104–122. 2. Auer, R. and Claessens, S. (2018). Regulating cryptocurrencies: assessing market reactions.BIS Quarterly Review September. 3. He, M. D., Kokenyne, A., Lavayssière, X., Lukonga, M. I., Schwarz, N., Sugimoto, N., and Verrier, J. (2022). Capital Flow Management Measures in the Digital Age: Challenges of Crypto Assets, volume 2022. International Monetary Fund. 4. IMF (2022a). Capital Flow Management Measures in the Digital Age (1): Challenges of Crypto Assets. Fintech Note 2022/005. International Monetary Fund. 5. IMF (2021). Global Financial Stability Report. October 2021.International Monetary Fund. 6. Copestake, A., Furceri, D., and Gonzalez-Dominguez, P. (2023a). Crypto market responses to digital asset policies. Economics Letters, 222:110949._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
IMF Working Papers IMF II IMF Working Paper André Reslow Gabriel Söderberg, Cross-Border Payments with Retail Central Bank Digital Currencies: Design and Policy Considerations IMF Fintech Note 2024/002 Washington, DC. 2024 IMF III IMF Working Papers Clemens Graf von Luckner Robin Koepke, Crypto as a Marketplace for Capital Flight. IMF Working Paper 24/133 Washington, DC. 2024 IMF IV IMF Working Papers Marco Pani Rodolfo Maino, “Could Digital Currencies Lead to the Disappearance of Cash from the Market? Insights from a ’Merchant-Customer’ Model.” IMF Working Paper WP/25/56 Washington, DC. 2025 |
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> Counter arguments against IMF Working Papers
> Counter arguments in relation to Capital Flight
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