Capital outflow - what is it?

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:40

In this article we will talk about such a phenomenon as capital flight. Consider what consequences it can lead to, what forms it has, and how to deal with it.

What do you need to know about churn?

Net capital outflow is the difference between the volume of funds withdrawn abroad and the inflow of funds to the state from abroad. Its minimization is a problem for every state.

The outflow of capital from the country can be associated with both the withdrawal of funds in order to legalize illegal profits, and using them to buy up assets of foreign countries. It is usually used to cut losses from inflation or other disadvantageous factors.

The outflow of capital enables entrepreneurs to reduce the impact of inflation and the tax burden, and it is expressed most often in the purchase of foreign physical assets by state taxpayers. That is, in the acquisition by them of shares, bonds and the like. If you want to understand this in more detail, then you need to understand what concepts such as "outflow" and "leakage" are:

1. With an outflow, investments in domestic sectors of the economy and finances decreaseuncontrolled exported abroad for more profitable placement.
2. In the event of a leak, money that was obtained illegally is laundered by buying up foreign assets, and thus trying to legalize them.

What could be the causes and consequences of the outflow

Regular outflow of capital can undermine the economic situation within the state from which money is withdrawn. For every country, capital flight is a huge problem, which confirms that an unfavorable economic situation has been created in it. The following reasons may arise for capital flight:

• Lack of confidence in banking systems as such.
• Risk of depreciation of the national currency.
• High level of development of the shadow economy.
• Flaws of the legal framework that would guarantee the security of private property.

This situation may, in turn, cause the budget to miss a significant part of duties and taxes, which lowers the bar for external and internal investments. And this, as a rule, provokes the development of the shadow economy and the criminalization of state power.

What measures should be taken to reduce churn

In order to reduce, and ideally prevent capital outflow, it is necessary to use administrative and market measures. Basically, there are three ways to solve this problem:

1. Administrative - this is when a country has a rigid monopoly in relation tocurrency non-economic activity. And basically the problem with capital flight is solved by bringing the perpetrators to justice.
2. Liberal-market looks like a gradual introduction of new conditions that do not worsen the current situation. At the same time, criminal methods of capital outflow are stopped and legal options are made as accessible as possible. Despite the fact that this option is very attractive, it can work, unfortunately, only in countries where the economy is developed. In addition, this method has a very big drawback - in order for it to work, you need to spend a lot of time on it.
3. Liberal-administrative - as in the option above, reforms must be carried out that will attract investors to the domestic economy, but at the same time very strict administrative methods are applied. And in order to prevent the capital from leaving, criminal-legal methods of struggle are used. This is the way the Russian Federation is going.

A more promising way for the CIS countries is the liberal-administrative way. And despite the fact that rather strict control is exercised by the country, this does not interfere with normal market relations.

Capital outflow from Russia

The problem of our state is that the funds that enter the Russian Federation are less than those that are taken out of the country. Officially, capital is leaving the Russian Federation in the form of attempts to increase foreign assets by state-owned commercial banks, the acquisition of foreign shares and foreign currency for further sale to individuals or legal entities, etc.p.

The whole problem is that the funds that enter the Russian Federation are less than those that are taken out of the state. But according to data for 2016, the outflow of capital from Russia was five times less than in 2015. There were the following reasons for this:

• Due to the imposition of sanctions, the owners of large capitals transferred many assets to the Russian Federation.
• The need to purchase cash currency has significantly decreased.

I would like to remind you that money laundering in the Russian Federation is punishable under Article 123 of the Criminal Code of the Russian Federation.