Efficient capital controls

Controls on short‐term capital inflows or panic‐driven capital outflows may benefit emerging markets that have fragile financial sectors and adjustable‐peg currency regimes. However, the controls seen so far are relatively easy to evade, often complex and obscure, and supported by large corruptible bureaucracies. A tax on foreign‐exchange payments avoids these drawbacks. It is transparent, inexpensive to set up and operate, administratively lean, and easy to adjust. A Tobin tax in effect, it is enforceable even when applied unilaterally.