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Capital Flight

Capital flight refers to the rapid movement of large amounts of financial assets or capital from a country due to economic instability, political turmoil, currency depreciation, or fear of government intervention. Investors and businesses may move their capital to safer countries with more stable economic environments to protect their wealth. Capital flight can have severe consequences for the country experiencing it, including a weakening currency, lower foreign reserves, and reduced investment, which can lead to a deepening economic crisis.

Example

During a political crisis, businesses in Country A may transfer their funds to foreign banks in more stable countries to avoid the risk of government seizure or currency collapse, resulting in capital flight from Country A.

Key points

• Capital flight occurs when large amounts of financial assets are moved out of a country due to economic or political instability.

• It can weaken a country’s currency and reduce foreign reserves, exacerbating economic problems.

• Investors seek safer countries with stable economic environments to protect their wealth.

Quick Answers to Curious Questions

Capital flight is often triggered by economic instability, political uncertainty, currency depreciation, or fear of government intervention, prompting investors to move assets abroad.

It can lead to a sharp decline in foreign reserves, currency depreciation, and reduced domestic investment, worsening economic instability.

Investors typically move capital to countries with stable economies, strong currencies, and favorable investment environments, such as the U.S. or Switzerland.