Essay on Transferring Financial Capital

In this essay, we will discuss details about transferring financial capital. The Argentine economic crisis of 2001 was caused by a currency devaluation and capital flight which resulted in a sharp drop in imports.

Capital flight occurs when assets or money rapidly flow out of a country because of that country’s recent increase in unfavorable financial conditions such as taxes, tariffs, labor costs, government debt, or capital controls.

This is usually accompanied by a sharp drop in the exchange rate of the affected country or a forced devaluation for countries living under fixed exchange rates.

Currency declines improve the terms of trade but reduce the monetary value of financial and other assets in the country. This leads to decreases in the purchasing power of the country’s assets.

Transferring Financial Capital

A 2008 paper published by Global Financial Integrity estimated capital flight, also called illicit financial flows to be leaving developing countries at the rate of “$850 billion to $1 trillion a year.” But capital flight also affects developed countries.

A 2009 article in The Times reported that hundreds of wealthy financiers and entrepreneurs had recently fled the United Kingdom in response to recent tax increases, relocating to low-tax destinations such as Jersey, Guernsey, the Isle of Man, and the British Virgin Islands.

In May 2012 the scale of Greek capital flight in the wake of the first “undecided” legislative election was estimated at €4 billion a week and later that month the Spanish Central Bank revealed €97 billion in capital flight from the Spanish economy for the first quarter of 2012

Capital flight can cause liquidity crises in directly affected countries and can cause related difficulties in other countries involved in international commerce such as shipping and finance.

Asset holders may be forced into distress sales. Borrowers typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to obtain. Typically, during a liquidity crisis, the interbank lending market stalls.

Economic inequality

Economic inequality affects equity, equality of outcome, and subsequent equality of opportunity. Although earlier studies considered economic inequality as necessary and beneficial, some economists see it as an important social problem

Early studies suggesting that greater equality inhibits economic growth did not account for lags between inequality changes and growth changes. Later studies claimed that one of the most robust determinants of sustained economic growth is the level of income inequality.

Of the factors influencing the duration of economic growth in both developed and developing countries, income equality has a more beneficial impact than trade openness, sound political institutions, and foreign investment.