This paper provides evidence on the effects of capital controls. We show that controls have been associated with significant differences in macroeconomic behavior, especially in monetary policy. While they have not prevented speculative attacks, they have provided the breathing space needed to organized orderly realignments. We also provide evidence on the channels through which speculative attacks operate, showing that bank lending to nonresidents is a key transmission mechanism. We conclude with a discussion of measures that mimic some of the effects of controls as a way of easing the transition to European Monetary Union. Non-interest-bearing deposit requirements on lending to nonresidents are proposed as a thirdbest route to monetary union.