Unit 4 · Level 2 · Global flows
When money runs
Money is the world's most nervous tourist: it arrives slowly and leaves in a stampede. When savers and investors lose faith in a country (its currency, its banks, its politics), capital flees to safer homes. Governments then face an ugly choice: let the currency and banks buckle, or slam the doors shut with capital controls.
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What you get asked
What is capital flight?
Residents and foreigners alike swap local assets for dollars, euros, gold, anything abroad. It's a trust run on an entire country, and like any run, speed is everything.
In 2015 Greece imposed capital controls. Savers could withdraw:
Queues at ATMs for €60 a day, in a eurozone country: proof this isn't just an emerging-market story. The controls stopped the bank run but took years to fully lift.
Government limits on moving money out of a country are called capital ___.
From withdrawal caps to outright bans on buying foreign currency. Argentina's version is nicknamed 'el cepo' (the clamp) and has been tightened and loosened for over a decade.
Match each term to what it describes
One drama, four roles. The tragic logic of runs: fleeing early is individually rational, and everyone fleeing early causes the very collapse each person feared.
Honestly, do capital controls work?
They can stop the bleeding (Iceland's post-2008 controls helped it recover), but capital remembers being trapped and charges for the risk later. And pre-announcing them just fires the starting gun. 🐜
The rest of this unit
Trade balances, petrodollars, and the money that flees at midnight.