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

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Macro-Economics of Capital Account-Convertibility

Macro-Economics of Capital Account Convertibility M J Manohar Rao Introduction THE authorities in many developing countries, including India, are currently implementing de jure liberalisation of the capital account of the balance of payments (BOP). At least two reasons can be identified for this interest in financial openness. First, there has been increasing de facto opening of the capital account: the effectiveness of capital controls has declined due to growing trade integration, financial innovations and financial opening elsewhere; and 15 years after the debt crisis, credit rationing by commercial banks is fading away while flight capital is being repatriated. Second, there is a proposal from the International Monetary Fund (IMF) to amend the articles of agreement to incorporate CAC as one of the obligations of Fund membership.

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