While most of the Asian countries still operate open markets, Hong Kong and Malaysia recently placed curbs on their stock markets, seeking to stop certain types of trading that result in increased volatility. Malaysia also discontinued trading in its currency, the ringgit, and imposed controls on its capital market. Malaysian currency held outside of the country will be worthless in a month. Foreign investors cannot withdraw their capital for a year. Hong Kong took a different approach.
Capital inflows boost the economy, resulting in increases in employment and income.
The problem, according to Malaysia and Hong Kong, is that the process is strongly influenced by speculators and capricious capitalists and their actions can cause a country much pain. The appeal of capital controls is that it gives a government more flexibility in its monetary and fiscal policies and, as Malaysian officials stated, time to repair their economy. Soon after Malaysia applied control measures, it lowered its interest rate, a policy that was not supportable with free currency exchange. Malaysia's stock market responded by increase in stock prices. The fear is that other countries suffering from the same ills will resort to the same measures.