Nevertheless, a large deficit does mean that an economy and its currency may struggle if foreign-capital inflows suddenly dry up.

ECONOMIST: Economics focus

Take its recent attempt to defend the currency by raising the statutory reserve requirements to as high as 40%. (This unwise move has the IMF's fingerprints all over it.) It merely restricts the amount of local currency available for changing into foreign currency, thus artificially containing incipient capital flight.

FORBES: Magazine Article

Brazil has also tried to limit an influx of foreign capital, which has forced the real currency to new highs, making the country's manufacturers less competitive.

CNN: SHARE THIS

Another measure: Asia's central banks are again scooping up capital inflows and putting them into foreign-currency reserves.

WSJ: Asian Governments Take Measures to Battle Strong Currencies

Therefore, to jump start the economy, the government had to rely on foreign direct investment and exports to bring capital and hard currency into the country, and as the economy developed, it had to use government spending to build infrastructure and further fuel growth.

FORBES: China And Sustainable Growth

Since they will be in a foreign currency, the issue will not be affected by Malaysia's capital controls.

ECONOMIST: Asian capital markets

Rieschel reasons that the Chinese currency fund is necessary because certain deals are difficult for foreign capital to invest in.

FORBES: China's New RMB Funds Look Too Hot

If, as a result of capital inflows, there is an excess supply of foreign currency, the central bank must buy it and sell yuan to keep the exchange rate stable.

ECONOMIST: China's economy

That would have one beneficial effect, by discouraging the inflows of short-term foreign capital that have pushed up the value of Brazil's currency, the real, thereby making Brazil's exports less competitive.

BBC: Brazil's inflation hawk Henrique Meirelles bows out

Two kinds of capital stand out: short-term debt, and debt denominated in foreign currency.

ECONOMIST: Shipbuilding

It was also to blame for the recession that hit the country when foreign capital flowed out in 1995 for fear of an Argentine version of Mexico's currency crash.

ECONOMIST: Argentina: The new face of opposition | The

Moreover, Malaysia's sweeping new capital controls will impede trade, because they make it harder for importers to get hold of foreign currency.

ECONOMIST: Will East Asia slam the door?