Controlled Capital Account Liberalization: A Proposal
AbstractIn this paper, we develop a proposal for a controlled approach to capital account liberalization for economies experiencing large capital inflows. The proposal essentially involves securitizing a portion of capital inflows through closed-end mutual funds that issue shares in domestic currency, use the proceeds to purchase foreign exchange from the central bank and then invest the proceeds abroad. This would eliminate the fiscal costs of sterilizing those inflows, give domestic investors opportunities for international portfolio diversification and stimulate the development of domestic financial markets. More importantly, it would allow central banks to control both the timing and quantity of capital outflows. This proposal could be part of a broader toolkit of measures to liberalize the capital account cautiously when external circumstances are favorable. It is not a substitute for other necessary policies such as strengthening of the domestic financial sector or, in some cases, greater exchange rate flexibility. But it could in fact help create a supportive environment for these essential reforms.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Policy Discussion Papers with number 05/7.
Date of creation: 01 Oct 2005
Date of revision:
Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
Other versions of this item:
- Raghuram G. Rajan & Eswar S. Prasad, 2005. "Controlled Capital Account Liberalisation: A Proposal," Working Papers id:278, eSocialSciences.
- NEP-ALL-2006-07-02 (All new papers)
- NEP-FIN-2006-07-02 (Finance)
- NEP-FMK-2006-07-02 (Financial Markets)
- NEP-IFN-2006-07-02 (International Finance)
- NEP-MON-2006-07-02 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alfred Broaddus, Jr. & Marvin Goodfriend, 2001. "What assets should the Federal Reserve buy?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 7-22.
- Eswar Prasad & Shang-Jin Wei, 2007.
"The Chinese Approach to Capital Inflows: Patterns and Possible Explanations,"
in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 421-480
National Bureau of Economic Research, Inc.
- Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc.
- Shang-Jin Wei & Eswar Prasad, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," IMF Working Papers 05/79, International Monetary Fund.
- Eswar Prasad & Raghuram G. Rajan & Arvind Subramanian, 2006. "Patterns of international capital flows and their implications for economic development," Proceedings, Federal Reserve Bank of Kansas City, pages 119-158.
- Raghuram Rajan, 2008. "Global Imbalances or why are the Poor Financing the Rich?," De Economist, Springer, vol. 156(1), pages 3-24, March.
- Dani Rodrik, 2006.
"The Social Cost of Foreign Exchange Reserves,"
NBER Working Papers
11952, National Bureau of Economic Research, Inc.
- Philip R. Lane & Sergio L. Schmukler, 2006.
"The international financial integration of China and India,"
Federal Reserve Bank of San Francisco, issue Jun.
- Lane, Philip R. & Schmukler, Sergio L., 2007. "The international financial integration of China and India," Policy Research Working Paper Series 4132, The World Bank.
- Lane, Philip R. & Schmukler, Sergio, 2006. "The International Financial Integration of China and India," CEPR Discussion Papers 5852, C.E.P.R. Discussion Papers.
- Eswar S. Prasad & Raghuram Rajan, 2008.
"A Pragmatic Approach to Capital Account Liberalization,"
NBER Working Papers
14051, National Bureau of Economic Research, Inc.
- Eswar S. Prasad & Raghuram G. Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 149-72, Summer.
- Prasad, Eswar & Rajan, Raghuram G., 2008. "A Pragmatic Approach to Capital Account Liberalization," IZA Discussion Papers 3475, Institute for the Study of Labor (IZA).
- Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada.
- Blanchard, Olivier J & Giavazzi, Francesco, 2006.
"Rebalancing Growth in China: A Three-Handed Approach,"
CEPR Discussion Papers
5403, C.E.P.R. Discussion Papers.
- Olivier Blanchard & Francesco Giavazzi, 2006. "Rebalancing Growth in China: A Three-Handed Approach," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(4), pages 1-20.
- Indermit Gill & Yukon Huang & Homi Kharas, 2007. "East Asian Visions : Perspectives on Economic Development," World Bank Publications, The World Bank, number 6627.
- Mendoza, Ronald U., 2010. "Was the Asian crisis a wake-up call?: Foreign reserves as self-protection," Journal of Asian Economics, Elsevier, vol. 21(1), pages 1-19, February.
- Philip Lane & Sergio Schmukler, 2007. "The Evolving Role of China and India in the Global Financial System," Open Economies Review, Springer, vol. 18(4), pages 499-520, September.
- L. Alan Winters & Shahid Yusuf, 2007. "Dancing with the Giants: China, India, and the Global Economy," World Bank Publications, The World Bank, number 6632.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).
If references are entirely missing, you can add them using this form.