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

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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.

DEALING WITH THE CAPITAL SURGE

Time for Global Capital Account Regulations

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