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

Dealing with the Capital SurgeSubscribe to Dealing with the Capital Surge

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.

Capital Management Techniques for Financial Stability and Growth

By refraining from imposing capital controls, India is today paying a high price in the form of a loss of autonomy in monetary policy, a reduction in the available fiscal space, and bouts of volatility in the foreign exchange and equity markets. These volatility episodes have often created a penumbra of uncertainty around investment decisions. Surprisingly, the pronounced swing of opinion globally against unfettered capital account liberalisation in the light of the recent financial upheavals seems to have completely bypassed Indian policy circles. This article discusses various options for "capital management" that would contribute to growth with stability. These techniques comprise two complementary (and sometimes overlapping) sets of policies, viz, capital controls on inflows/outflows and prudential financial regulation.

Managing Capital Flows, c.2010: Policy Options for India

With the emergence of a "two-speed" world in the aftermath of the 2008 crisis, financial flows are expected to flood emerging markets' shores, including those of India which has positive growth and interestrate differentials vis-à-vis the advanced countries. This article discusses existing policy options for India and concludes by emphasising the need to evolve a medium-term response strategy, one of whose elements include countercyclical fiscal responses.
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