Governments can adopt different measures to prevent capital flight.
When fixed exchange rates fail, governments often resort to capital controls, as the United States did in the sixties. Imposing controls during or just after a capital flight episode, however, is a little worse than closing the barn door after the horse has fled. Controls further reduce confidence in local financial markets and make capital that has flown less likely to return. Capital controls encourage black markets for foreign currency and other costly methods of evasion. Those who import or export goods can also export money by simply overstating the value of the goods they import or by understating their export earnings. Even the most draconian measures to limit capital flight often fail. Capital flight from the Weimar Republic continued in 1931, despite the fact that capital expatriation was made an offense punishable by death.
Another strategy that governments can use to limit capital flight is to make holding domestic currency more attractive by keeping it undervalued relative to other currencies or by keeping local interest rates high. The drawback to this approach is that raising interest rates and making imported equipment more expensive can reduce domestic investment. A more sophisticated defense against hot money flows, but one that is harder to execute, is for the central bank to occasionally turn the tables on speculators. A classic «squeeze» of this type was engineered by Lazard Frures for the French government in 1924. Using a $100 million loan from J. P. Morgan, they bid the franc from 124 to 61 per dollar in a few weeks. Speculators who had sold the franc short in the expectation that its value would fall were hit by big losses. Italy, the United States, and Sweden have also used this unexpected intervention tactic from time to time.
Слова и выражения:
anticipate – предвосхищать, предугадывать
barn – амбар, конюшня
bid – предлагать цену, торговать(ся)
broadly – широко
confidence – доверие
convert – конвертировать
convertible – конвертируемый
currency – валюта
demise – кончина
depletion – истощение ( запасов )
devaluation – девальвация
devalue – девальвировать(ся)
distinction – различие, отличие
domestic – домашний
draconian – драконовский
drawback – недостаток, ошибка
expatriation – экспатриация ( возвращение на родину )
expectation – ожидание
expropriation – экспроприация
flee (fled) – спасаться бегством
flight – бегство
frequent – частый
instability – нестабильность
intervention – интервенция
notorious – пользующийся дурной славой
offense – оскорбление, нарушение закона
otherwise – в ином случае, иначе
outflow – отток
precedence – преимущество, приоритет
punishable – подлежащий наказанию
resident – житель, резидент (страны)
resort – обращаться, прибегать
sophisticated – изощренный
sound – здоровый, здравый, целый, неповрежденный
squeeze – выдавливать, выжимать
symptom – симптом
tactic – тактика
trigger – здесь : провоцировать, «включать» ( букв . нажимать курок)
undervalued – переоцененный
unstable – нестабильный
widespread – широко распространенный
withdrawal – снятие ( со счета ), изъятие ( депозита )
worried – обеспокоенные
cross-border – переходящий границы
a matter of degree – вопрос степени
short-lived – кратковременный
" hot money" – «горячие деньги»
self-fulfilling – самодостаточный, направленный на самое себя
gold standard – золотой стандарт
break apart – развал
bar from – запрещать ( иметь или делать что-либо )
flight vehicle of choice – средство вывести капитал
debt crisis – долговой кризис
debtor countries – страны-должники
debt obligations – обязательства по долгу
black market – черный рынок
turn the tableson – повернуть оружие врага на него самого
Exercise 3
Answer the questions:
1. What is capital flight?
2. What can the distinction between «flight» and normal capital outflows be compared with?
3. What is the most common cause of capital flight?
4. Why do people carry their money away from their home country?
5. What are the best vehicles for the capital flight?
6. When is the capital flight most likely to occur?
7. How did the term «capital flight» change in the eighties?
8. What measures can be adopted to prevent the capital flight?
9. Why were the capital controls inefficient in the US in the sixties?
10. How can a government make the domestic currency more attractive?
1At a country-club party a young man was introduced to an attractive girl. Immediately he began paying her court and flattering her outrageously. The girl liked the young man, but she was taken a bit aback by his fast and ardent pitch. She was amazed when after 30 minutes he seriously proposed marriage.
«Look,» she said. «We only met half an hour ago. How can you be so sure? We know nothing about each other.»
«You\'re wrong,» the young man declared. «For the past 5 years I\'ve been working in the bank where your father has his account.»
2A young banker decided to get his first tailor-made suit. So he went to the finest tailor in town and got measured for a suit. A week later he went in for his first fitting. He put on the suit and he looked stunning, he felt that in this suit he can do business.
As he was preening himself in front of the mirror he reached down to put his hands in the pockets and to his surprise he noticed that there were no pockets. He mentioned this to the tailor who asked him, «Didn\'t you tell me you were a banker?»
The young man answered, «Yes, I did.»
To this the tailor said, «Who ever heard of a banker with his hands in his own pockets?»
3A man walks into a New York City bank and says he wants to borrow $2,000 for three weeks. The loan officer asks him what kind of collateral he has. The man says «I\'ve got a Rolls Royce – keep it until the loan is paid off – here are the keys.» The loan officer promptly has the car driven into the bank\'s underground parking for safe keeping, and gives the man $2,000.
Three weeks later the man comes into the bank, pays back the $2,000 loan, plus $10 interest, and regains possession of the Rolls Royce. The loan officer asks him, «Sir, if I may ask, why would a man who drives a Rolls Royce need to borrow two thousand dollars?»
The man answers, «I had to go to Europe for three weeks, and where else could I store a Rolls Royce for that long for ten dollars?»
Слова и выражения:amaze – изумлять
ardent – горячий, пылкий
attractive – привлекательная
collateral – обеспечение займа, залог
fitting – примерка
flatter – льстить
immediately – немедленно
introduce – представлять, знакомить
marriage – женитьба
outrageous – возмутительный
pitch – решительность
preen – прихорашиваться
promptly – быстро
propose – предлагать (руку и сердце)
store – хранить
stunning – ошеломляющий
country-club party – вечеринка в загородном клубе
pay court – ухаживать (за женщиной)
taken aback – ошеломленный, удивленный, озадаченный
a bit – немного
tailor-made suit – костюм, сшитый портным
got measured – был измерен
underground parking – подземная стоянка
safe keeping – хранение
regain possession – вновь принять во владение8. Тексты для дополнительного чтения (Supplementary Reading)
New Forex Tool for Currency Investors
Investors have been given a new tool for trading in the global currency markets, with the launch of the first standardised foreign exchange indices on Monday.
These new products enable investors to place bets on the value of single currency, such as the dollar, in terms of a trade-weighted basket – instead of being forced to express foreign exchange views in pairs of currencies, such as the movement of the dollar against the euro.
This shift could potentially attract a new group of retail investors into the foreign exchange markets, some investment bankers claim. But it could also facilitate the creation of a new branch of advanced derivatives, since complex structured products are usually created using standardised indices – which have generally been lacking in the foreign exchange sector so far.
The new foreign exchange index, which will be called iBoxxFX, has been created by International Index Company, which is based in Frankfurt and jointly owned by a dozen major investment banks and Deutsche Börse.
Although IIC is not widely known outside the financial sector, it is a major player in the business of running independent market indices, such as the iTraxx index in credit derivatives. «Customers can now trade single currencies or specific macroeconomic blocks. This will facilitate the development of structured products based on indices,» said David Mark, chief executive of IIC.
He added that the development of such indices was particularly «timely» given the current investor attention to the dollar and euro.