Capital flight

Capital flight, in economics, refers to the rapid movement of assets or money out of a country due to significant economic events. These may include higher taxes on capital or capital holders, a government default on its debt, or political instability. Such factors can unsettle investors, leading them to devalue domestic assets or lose confidence in the country's economic stability.

Typically, capital flight is a symptom rather than a cause of financial crises. However, in some cases, speculation about currency devaluation can trigger capital outflows. If investors anticipate devaluation, their actions can deplete central bank reserves, ultimately forcing the devaluation to occur. In such instances, capital flight contributes to financial instability, much like how panic-driven withdrawals can cause a stable bank to collapse.