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A reintroduction of exchange controls

“A way of applying the brakes when the exchange rate is moving to far in the wrong direction.”

2. How does it fit with Compass’ core beliefs of equality, solidarity, democracy, freedom, sustainability and well being?

Not a reintroduction of Exchange Controls circa 1979, but a series of controls based on something called the tripwire and speedbump approach with the intention of keeping the pound stable. It involves imposing a restriction (speedbump) on foreign exchange based on an occurrence (tripwire) in the foreign exchange market (such as the exchange rate dropping to a certain level). It will help to keep the currency stable and protect our economic wellbeing from the fluctuations of international finance, something that I believe is very much in tune with Compass’ core beliefs.

3. How does it build the institutions of social democracy, like social groups and collective and cooperative forms of ownership and control?

Takes an important lever of economic control and put’s back in the hands of our elected representatives. Economics is not some science where an optimum solution is always present but a series of tradeoffs with winners and losers. It should be the people through their elected representatives who decide such things, not the invisible hand of the market.

4. How much will it cost or raise and where will any cost come from?

There will be a cost although this should not be excessive, certain speedbump measures such as exit and entry taxes (a tax on foreign exchange) should make it largely self financing.

5. Which groups in the electorate are likely to support or oppose this measure? Is there any polling evidence you have on this?

The city, who lobbied for the scrapping of these measures in the first place are likely to be opposed, the manufacturing industry is likely to be broadly in favour. The general public are likely to be undecided since it is quite complex area of economic policy.

6. Is there a place or country where it’s worked? Please provide some information.

It was practiced in almost all western democracies (with the exception of the US) for a number of years after World War 2. It played a vital role in helping Malaysia weather the Asian financial crisis in 1997 where it rapidly brought capital flight to a halt.

It has also been practiced in India and China where it has been vital in ensuring that foreign money is put to productive use and not used for speculative purposes.

7. What are the three main arguments in favour/against it?

In favour:
It gives our elected politicians more control over our economic wllbeing.
It provides economic stability which is good for long term business growth.
It has the potential to combat some forms of tax evasion such as transfer pricing.

Against:
It is not accepted by the IMF
It goes against the grain of current trends in economic policy and is therfore not readily accepted as a viable idea.
It has the potential if used irresponsible to be used for “beggar thy neighbour” purposes.

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This entry was posted on Thursday, December 11th, 2008 at 9:06 pm and is filed under Equality. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.