Paul Krugman: Hot Money Blues

Whatever the final outcome in the Cyprus crisis — we know it’s going to be ugly; we just don’t
know exactly what form the ugliness will take — one thing seems certain: for the time being, and
probably for years to come, the island nation will have to maintain fairly draconian controls on the
movement of capital in and out of the country. In fact, controls may well be in place by the time
you read this. And that’s not all: Depending on exactly how this plays out, Cypriot capital controls
may well have the blessing of the International Monetary Fund, which has already supported such
controls in Iceland.

That’s quite a remarkable development. It will mark the end of an era for Cyprus, which has in
effect spent the past decade advertising itself as a place where wealthy individuals who want to
avoid taxes and scrutiny can safely park their money, no questions asked. But it may also mark at
least the beginning of the end for something much bigger: the era when unrestricted movement of
capital was taken as a desirable norm around the world.