Sample Essay

Capital control was another strategy that the United Kingdom employed in order to reduce the effects of the financial crisis within its boundaries. Capital control was achieved through the capital liberalization as a result of the instability in the financial markets. Even though capital controls are mainly applicable in economies having fixed regime exchange rates, they can be employed in the other economies as well (Esping-Andersen, 1996).

One important function or purpose of the capital controls is to preserve the autonomy of monetary policy or domestic objectives that regards direct monetary policy whilst trying to reduce the pressures on the exchange rates (Buxton, 1998). The United Kingdom employed the capital controls in order to maintain the autonomy of its exchange rates as well as and reduce the associated pressures on the various exchange rates. The impact of this was to regulate the financial markets.

In addition, the United Kingdom changed the prevailing policy paradigm that various stakeholders used to interpret the balance of payments (Notermans, 1997).

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