Capital Flight

Definition

Capital flight is the rapid, large-scale movement of financial assets and capital out of a country due to political instability, economic deterioration, punitive taxation, currency devaluation fears, or impending conflict. It can take the form of transferring bank deposits to foreign accounts, converting domestic currency to foreign currencies or assets, or physically moving wealth offshore. Capital flight depletes a nation's foreign reserves, weakens its currency, reduces investment, and limits the government's ability to service debt or fund public services. It often becomes self-reinforcing: as capital leaves, economic conditions worsen, prompting further outflows. Capital controls may be imposed to stem the flow, but these can further undermine investor confidence.