Financial repression forces banks and citizens to hold government debt on terms the market would never accept. Economists have called it distortionary for fifty years. It never went away.

Oleg Itskhoki and Dmitry Mukhin study what happens when a government runs out of options. Their paper traces how Russia deployed financial repression in 2022 to survive the largest sanctions package in postwar history. The ruble was in freefall; banning cash withdrawals and forcing exporters to hand over foreign currency revenues stopped the crisis. The measures worked because Russia kept earning export income, and the sanctions never closed that tap. But with government debt in advanced economies now at historic highs, financial repression is no longer confined to authoritarian regimes under siege. It is a path of least resistance for a government that would rather suppress the symptoms of unsustainable debt than carry out the fiscal reforms needed to fix it.

The research behind this episode:

Itskhoki, Oleg, and Dmitry Mukhin. 2026. "Sanctions, Capital Outflows, and Financial Repression." Economic Policy: Papers on European and Global Issues.

To cite this episode:

Phillips, Tim. 2026. "Sanctions, Capital Outflows, and Financial Repression." Economic Policy: Papers on European and Global Issues (podcast).

Assign this as extra listening. The citation above is formatted and ready for a reading list or VLE.

About the guests

Oleg Itskhoki is a professor of economics at Harvard University. His research spanning international macroeconomics, exchange rates, capital flows, and financial frictions has reshaped how economists think about currency crises and the limits of open-economy models. He received the John Bates Clark Medal from the American Economic Association in 2022.

Research cited in this episode

The Washington Consensus was the post-Cold War policy framework, closely associated with the International Monetary Fund and the World Bank, that advocated free capital markets and discouraged government intervention in exchange rates or cross-border capital flows. Under this framework, financial repression was considered illegitimate; the goal was a more market-oriented, liberal macroeconomic order. As Itskhoki notes, the consensus has frayed considerably since the 2008 financial crisis, and the IMF now endorses certain forms of capital flow management under specific circumstances, though the broader norm against persistent financial repression remains.

Financial repression is any government intervention that distorts the private financial decisions of domestic agents. In its traditional form, it meant forcing the banking sector to hold government debt at below-market returns, crowding out private investment and reducing the fiscal cost of high debt levels. The term covers a wide range of tools: restrictions on cash withdrawals, requirements that exporters convert foreign currency revenues to the central bank, interest rate ceilings, and policies designed to prevent citizens from holding savings in foreign currencies. Itskhoki distinguishes between its use in normal times (which he regards as distortionary and unjustified except as a last resort) and its deployment in emergencies such as financial crises, bank runs, or external sanctions, where it may be the only available stabilising instrument.

Capital controls are government restrictions on cross-border capital flows. They are related to but distinct from financial repression: capital controls concern what money can cross borders; financial repression concerns what domestic agents can do with money at home. The two are often deployed together under external pressure.

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