Aug 31 2007
Freedom of movement of money
"Money makes the world go round". In recent years until this summer’s higher interest rates and market woes easy credit and low interest rates have made the economic world go round, with higher growth and more people finding jobs. Crucial to the development of India and China and Eastern Europe has been the relatively free movement of money. Free movement of cash has allowed inward investment into many countries; it has encouraged it by rewarding the investors with dividends and capital repayments when they are successful; and has allowed countries like the USA and the UK to act as buyers of last resort for many products made by developing countries based on substantial increases in public and private debt in the richer countries.
The excesses of recent years do not argue for an end to the relatively free movement of money. They argue for more vigilant Central Banks and governments keeping interest rates at a high enough level to discourage inflationary borrowing. Now interest rates are higher we see how that has a big impact on banks’ capacity to borrow and lend. Policy has lurched from being too easy to being tough.
There are two limits that should be placed on the movement of money.
The first is to seek to control or prevent the movement of cash from crime and to pay for criminal activity. The complex international money laundering regulations have the right intention. The UK’s clumsy interpretation of them combines needless bureaucracy for the innocent majority with occasional ineffectiveness when it comes to large drug and terrorist networks. There needs to be more effort to tighten the control and monitoring of suspicious large movements by people under surveillance for drug or terrorist actions, or by people who should be under such surveillance.
The second should be to prevent monopolists, especially if they are the investment arms of governments, from using large sums to buy controlling interests in formerly competitive free enterprise businesses. We broke the monopolies of our state owned telecoms and energy industries, and introduced private capital, so we could obtain the lower prices and better range of service you receive from competing companies in place of the poor quality and high price we were used to from a state monopoloy. We did not do all that so the main businesses could be bought up by a foreign government or its representative to convert it into the state policy arm of someone else’s government.
Now several countries have huge "investment" funds at their disposal we need to make it clear that we do not wish to see them buying control of important companies in the UK, as they may be motivated by different considerations to normal shareholders and managers of private companies.
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John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
John, what is your opinion of ‘Hedge Funds’ and the concept of ‘Short Selling’ ? I remember that the Japanese government had grave concerns over hedge funds about a decade ago. Do you see hedge funds as being parasitic?
Reply: Hedge funds, like Unit trusts, are many and varied. Some are cautious, some are risky. Some have done well, a few have done badly. They are not parasitic. Some funds have a direct and favourable impact on company performance. Others use complex mathematical models to trade more abstruse instruments. The recent sharp falls in some debt obligation valuations will cause funds investing in such pieces of paper to rethink their strategies, and cause bankers to reconsider how much it is wise to lend to them. Anyone thinking of investing in any fianncial product is advised these days by the regulators to go to a regulated business that should be able to explain the particular risks of each fund.
I wonder if the increace in “identity theft” has any correalation with the money laundering regulations that require people to send in personal documents every time they consult a solicitor, open a bank account, invest in a unit trust and so on. Sometimes financial organisations lose these papers, and they have even been reported found in black plastic sacks put out for the dustman.
Maybe the person who introduced these regulations should be named as an accessory in every prosecution brought for identity theft.
The introduction of reglations that require ordinary people to “prove themselves” all the time is surely part of the sort of society Europeans have fought against in wars from the time of Napoleon to Hitler.
They also add to the atmosphere of mistrust and suspicion that is ruining life today which terrorists have sought to achieve especially since 9/11.
Reply: I have complained long and loudly about the clumsy implementation of the Money Laundering regulations. They are a prime example of foolish controls which impede honest people going about their business but do not help catch sophisticated crooks. It is a crazy idea that crooks cannot procure a gas bill or lack a passport, and an equally crazy idea that producing such documents establishes the fact that the money was honestly come by. I resent having to present these documents every time I pay a cheque out of my UK bank account which receives my heavily and fully taxed income from my specified employer, into certain kinds of savings schemes or business transactions. The government blames the banks, and the banks blame the government. It’s high time the government sorted it out.
Does anyone on this forum know if there is a web page that sets out exactly what are valid “papers” that prove identity? Or is it left to the discretion of the institution demanding them?
Yes, requirements vary.