Capital flight

Capital flight means that investors and wealthy people withdraw their money from a country en masse – into more stable countries or currencies.

Typical triggers:

• Political uncertainty: change of government, nationalisation, war
• Economic crisis: threat of state insolvency
• Currency collapse: the currency loses value rapidly (Argentina, Turkey)
• Tax increases: higher wealth tax, capital gains tax

Consequences: capital flight intensifies the crisis: less money in the country → the currency falls further → interest rates rise → the economy shrinks → even more money flows out. A vicious circle.

Historical example: Greece 2015: ahead of the threatened "Grexit", Greeks withdrew billions from their accounts within a few days. The government had to close the banks and limit withdrawals to €60/day.