ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Jose Antonio OcampoSubscribe to Jose Antonio Ocampo

IMF's New View on Capital Controls

In the 1970s the International Monetary Fund became an advocate of capital account liberalisation, and in 1997 it tried to change its Articles of Agreement to include capital account convertibility among its mandates. In contrast, the IMF embraced in December 2012 a new "institutional view" on this issue. While it remains wedded to eventual fi nancial liberalisation, it now acknowledges that free movement of capital rests on a weak intellectual foundation. This article claims that this is a step in the right direction, but that the new institutional view still suffers from a number of shortcomings.

Time for Global Capital Account Regulations

All the elements - reserves, exchange rates and capital flows - of the global monetary system need reforms. Capital flows, the third leg, call for capital account regulations in both developing and developed countries. In the former, regulations can be justified as a way to help authorities avoid exchange rate appreciation while reducing the need for costly and/or useless foreign exchange reserve accumulation. In the advanced economies, the effectiveness of monetary expansion may be enhanced if they reduce the leakages generated by short-term capital outflows. This would, in fact, imply a return to the basic principle under which the IMF was built: that it is in the best interests of all members to allow countries to pursue their own full employment macroeconomic policies, even if this required regulating capital flows.
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