FacebookTwitterRedditEmail

The Volatile Flow of Hot Money

At a point in the election season when politicians of the same party tend to sweep their differences under the rug, two senior Democrats have sent a strong letter to the Obama administration on a subject unknown to most American voters.

This is the issue of capital controls — various measures governments use to control volatile flows of money across their borders. Iceland, for example, used them to prevent massive capital flight in the midst of their meltdown. Other countries have used them to prevent speculative bubbles. In fact, governments that used capital controls during the 2008 crisis were among the least hard-hit, according to International Monetary Fund research.

However, despite their proven effectiveness in many cases, these policy tools are prohibited by U.S. trade and investment policies. Particularly in the wake of the worst financial crisis in 80 years, it’s an embarrassingly outmoded position that only serves the narrow short-term interests of global financiers and corporations.

Thankfully, two top Democrats are not willing to just overlook the problem. In a letter to Treasury Secretary Timothy Geithner, Representatives Barney Frank and Sander Levin stated they could not support U.S. trade agreements unless the administration produces a “binding interpretation” of U.S. policy clarifying that governments would not be subject to investor lawsuits if they use this policy tool to manage financial volatility.

Frank is the ranking Member of the Financial Services Committee, while Levin is the leading Democrat on trade policy as the ranking Member of the Ways and Means Committee. They are part of a growing chorus calling for trade reforms to allow greater flexibility on capital controls. In fact, in their letter to Geithner, they cited a statement signed by more than 250 economists calling for such changes in U.S. policy.

The Frank-Levin letter comes at a key moment. In April, the Obama administration released a new model U.S. bilateral investment treaty. Despite strong calls for reform from public interest representatives on an official advisory body, the new model maintains the old language prohibiting capital controls, with no exceptions for times of financial crisis. Governments that violate such rules face the prospect of being sued by foreign investors in international tribunals.

The administration intends to use this new model as the template for bilateral investment treaties with China, India, and several other countries. It’s also a strong indication of what they’re seeking in ongoing negotiations over a Trans-Pacific Partnership, a trade agreement involving at least eight other governments.

By stepping up pressure from Congress, Frank and Levin may help alter the outcome of these negotiations. By showing that the views of U.S. officials are not monolithic, they may embolden negotiators from other countries who are seeking a more reasonable approach. Two of the governments involved in the Trans-Pacific talks, Singapore and Chile, sought exemptions for the use of capital controls to prevent crises when they negotiated bilateral trade agreements with the United States about a decade ago. At that time, the Bush administration refused to concede, beyond putting some modest limits on how much investors could demand in compensation for certain types of controls.

Today, we have the opportunity to apply lessons from a financial crisis caused by poorly controlled financial activities. And it’s never been clearer that financial stability at home and abroad is essential for U.S. economic health. When our trading partners fall into financial crisis, we lose export markets and jobs. When hot money makes it impossible to control currency values, it hurts long-term investors and exporters and importers from the United States.

It’s in all of our interest to support a fresh, flexible approach to capital controls.

Sarah Anderson directs the Global Economy Project of the Institute for Policy Studies.

This column is distributed by OtherWords.


More articles by:

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies.

July 08, 2020
Laura Carlsen
Lopez Obrador’s Visit to Trump is a Betrayal of the U.S. and Mexican People
Melvin Goodman
Afghanistan: What is to be Done?
Thomas Klikauer – Norman Simms
The End of the American Newspaper
Sonali Kolhatkar
The Merits of Medicare for All Have Been Proven by This Pandemic
David Rosen
It’s Now Ghislaine Maxwell’s Turn
Nicolas J S Davies
Key U.S. Ally Indicted for Organ Trade Murder Scheme
Bob Lord
Welcome to Hectobillionaire Land
Laura Flanders
The Great American Lie
John Kendall Hawkins
Van Gogh’s Literary Influences
Marc Norton
Reopening vs. Lockdown is a False Dichotomy
Joel Schlosberg
“All the Credit He Gave Us:” Time to Drop Hamilton’s Economics
CounterPunch News Service
Tribes Defeat Trump Administration and NRA in 9th Circuit on Sacred Grizzly Bear Appeal
John Feffer
The US is Now the Global Public Health Emergency
Nick Licata
Three Books on the 2020 Presidential Election and Their Relevance to the Black Live Matter Protests
Elliot Sperber
The Breonna Taylor Bridge
July 07, 2020
Richard Eskow
The War on Logic: Contradictions and Absurdities in the House’s Military Spending Bill
Daniel Beaumont
Gimme Shelter: the Brief And Strange History of CHOP (AKA CHAZ)
Richard C. Gross
Trump’s War
Patrick Cockburn
Trump’s Racism May be Blatant, But the Culture He Defends Comes Out of the Civil War and Goes Well Beyond Racial Division
Andrew Stewart
Can We Compare the George Floyd Protests to the Vietnam War Protests? Maybe, But the Analogy is Imperfect
Walden Bello
The Racist Underpinnings of the American Way of War
Nyla Ali Khan
Fallacious Arguments Employed to Justify the Revocation of Jammu and Kashmir’s Autonomy and Its Bifurcation
Don Fitz
A Statue of Hatuey
Dean Baker
Unemployment Benefits Should Depend on the Pandemic
Ramzy Baroud – Romana Rubeo
Will the ICC Investigation Bring Justice for Palestine?
Sam Pizzigati
Social Distancing for Mega-Million Fun and Profit
Dave Lindorff
Private: Why the High Dudgeon over Alleged Russian Bounties for Taliban Slaying of US Troops
George Wuerthner
Of Fire and Fish
Binoy Kampmark
Killing Koalas: the Promise of Extinction Down Under
Parth M.N.
Back to School in Rural India: Digital Divide to Digital Partition
Ed Sanders
The Burning of Newgate Prison: a Glyph
July 06, 2020
Melvin Goodman
Foreign Election Interference: Who is to Blame?
JoAnn Wypijewski
On Disposability and Rebellion: Insights From a Rank-and-File Insurgency
Marshall Auerback – Jan Frel
There’s a Hidden Economic Trendline That is Shattering the Global Trade System
Evaggelos Vallianatos
A Just and Talented Government for Our Hazardous Age
Manuel García, Jr.
Biosphere Warming in Numbers
Ron Jacobs
Kidnapping Kids: As American as the Fourth of July
Tasha Jones
Pyramids. Plantations. Projects. Penitentiaries
Binoy Kampmark
Criminalising Journalism: Australia’s National Security Craze
Eve Ottenberg
Re-Organizing Labor
Mike Garrity
How We Stopped Trump From Trashing a Critical Montana Roadless Area in Grizzly Habitat
Nino Pagliccia
The Meaning of the 1811 Independence for Today’s Venezuela
Michael Galant
We Need a Global Green New Deal
Jill Richardson
Learning Not to Look Away
Marshall Sahlins
Donald Trump at 130,000 and Rising
FacebookTwitterRedditEmail