The discriminatory nature of the capital controls exit mechanism could have a huge impact on Iceland
’s economy, and on its people, writes Shanker Singham,
Director of Economic Policy and Prosperity Studies at the Legatum Institute (Reaction)
“As the issues of financial services passports, the single market and movement of people swirl around the media in the wake of the British vote to leave the European Union, one issue that has not been discussed is how the UK might deal, in this post Brexit world with negotiations with both the EU and EFTA countries where distortions damage UK interests. Iceland, an EFTA member which is also an EEA member presents one of these issues."
“Our data (revealed in a forthcoming Legatum Institute paper) shows that removal of the capital control mechanism completely, in its entirety, could lead to an injection of between $5bn and $9bn into the Icelandic economy. This translates into between $15,000 and $27,000 to each Icelandic citizen."
“The damage done by Icelandic capital controls illustrates the harm that these mechanisms actually impose on economies. While the original imposition of controls was done in the wake of a crisis of extraordinary scale, too many governments around the world embrace capital controls for much less significant reasons and underestimate the impact of this practice on their own economies. Rarely does this happen in an otherwise open economy and this enables us to use the Iceland case study to say something about the negative impact of capital controls and their discriminatory removal that has an impact on domestic economies."
Read: Frozen Capital: How to Boost Iceland’s Economy