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

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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.

The authors acknowledge support from the Ford Foundation for work on this issue.

In December 2012, the International Monetary Fund’s (IMF) Executive Board endorsed a new “institutional view” on capital account liberalisation and the management of capital flows. The same institution that once told emerging market and developing countries to liberalise their capital accounts has shifted gears to say that, under certain circumstances, it is adequate to regulate cross-border finance. The Fund thus now endorses – although only half way – the perspective of many emerging and developing countries. This new view will give official guidance to IMF surveillance and reporting efforts. In particular:

• The IMF now recognises that capital flows carry risks, and that the liberalisation of capital flows before nations reach a certain threshold of financial and institutional development can accentuate those risks.

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