What is a typical advantage of capital controls compared to free capital mobility?

• A. They always improve efficiency
• B. They allow more monetary policy autonomy
• C. They eliminate inflation
• D. They guarantee fiscal balance

Answer: (B)

Capital controls limit cross-border financial flows, which gives a country more freedom to set its own monetary policy without being pulled around by global capital movements. When capital is freely mobile, domestic policy is heavily influenced by foreigners’ expectations and flows in response to foreign interest rates, exchange-rate moves, or risk appetite, making it hard to pursue independent goals. By restricting those flows, a country can adjust interest rates and the money supply to achieve domestic objectives like controlling inflation or stabilizing output, even when the rest of the world is moving in a different direction. That usually translates into greater monetary policy autonomy.

The other options don’t fit as neatly. Capital controls do not guarantee that efficiency improves, since they can introduce distortions and reduce investment. They do not automatically eliminate inflation, since inflation arises from many factors beyond capital flows. They also do not guarantee fiscal balance, which depends on budgetary policies and debt dynamics.