Freeing money: Why have states been more willing to liberalize capital controls than trade barriers?

This article investigates why advanced industrial states have chosen to dismantle their postwar capital controls during a period — the 1970s and 1980s — when they became less enthusiastic about eliminating trade restrictions. Four explanations are presented. First, the unique mobility and fungibility of money was important in both encouraging competitive deregulation pressures and making the control of financial movements difficult, each of which created differing collective action dynamics in the financial sector than existed in the trade field. Second, the US and Britain played a leading role in encouraging financial liberalization because they held distinct hegemonic interests in finance that did not exist to the same degree in the trade sector. Third, domestic coalitions of neo-liberal advocates and internationally-oriented corporate interests encountered relatively little domestic political resistance to their demands for financial liberalization because of the low domestic political visibility of international financial issues. Finally, financial liberalization and trade protectionism may in fact have been directly related: it has proven difficult for states to maintain liberal practices in finance and trade at the same time.