A central bank can actively engineer capital flight to discipline elected governments

Evidence

From 1932 to 1936 government spending was cut by 20 percent, industrial production fell nearly a quarter, the real exchange rate rose, and the money supply collapsed. Any attempt to compensate led to capital flight, which the Bank actively supported as a way of disciplining the government. The Bank planted stories in the press discrediting fiscal experiments elsewhere, insisted on budget cuts as the only way forward, and generally vetoed any policies that the democratically elected government promoted that did not meet with its approval. — Mark Blyth, Austerity, 551

Categorization

• XREF: Reinforces Blyth’s running argument that capital mobility plus an unsupportive monetary authority makes reflation impossible — the precise mechanism Mattei extends to the eurozone. — connects to: Reflation without capital controls fails when the central bank abets flight. — Mark Blyth, Austerity: The History of a Dangerous…, 553
• SEED: Angle: the media as a central-bank tool — the Bank of France planting press stories discrediting fiscal experiments is a striking early instance of monetary-policy propaganda.

Broader Connections

• Reflation without capital controls fails when the central bank abets flight. #corroborates (0.85) — Mark Blyth, Austerity, 553