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Converting and transferring currency : benchmarking foreign exchange restrictions to foreign direct investment across economies

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  • Anderson, John
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    Abstract

    The ease of converting and transferring currency is a crucial consideration for firms investing in a foreign economy. The Converting and Transferring Currency data and indicators measure foreign exchange restrictions most relevant for foreign direct investment across economies to identify common policies and benchmark the restrictiveness of economies'foreign exchange regimes. Of 98 economies included in the analysis, 53 economies maintain generally unrestricted foreign exchange regimes for foreign direct investment. But 24 economies impose moderate to heavy restrictions across most transactions covered by the Converting and Transferring Currency indicators, with another 21 economies imposing administrative or procedural requirements. All high-income economies measured by the Converting and Transferring Currency data maintain unrestricted foreign exchange regimes for foreign direct investment, and the two poorest regions of South Asia and Sub-Saharan Africa are the most restrictive regions on average. Still, there is significant variation in restrictiveness across economies at similar income levels: 38 percent of low-income and lower-middle-income economies impose moderate to heavy restrictions on transactions covered by the Converting and Transferring Currency data, but another 38 percent of such economies maintain fully unrestricted regimes. The Converting and Transferring Currency indicators are significantly correlated with measures of remittances risk, foreign direct investment, and exports, and especially with inflows of foreign direct investment per capita. The paper concludes by identifying common areas for regulatory reform that could be considered across economies, depending on country-specific conditions and the macroeconomic context of potential foreign exchange reforms.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6601.

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    Date of creation: 01 Sep 2013
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    Handle: RePEc:wbk:wbrwps:6601

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    Keywords: Debt Markets; Emerging Markets; Currencies and Exchange Rates; Banks&Banking Reform; Bankruptcy and Resolution of Financial Distress;

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    1. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
    2. Reinhardt, Dennis & Ricci, Luca Antonio & Tressel, Thierry, 2013. "International capital flows and development: financial openness matters," Bank of England working papers, Bank of England 472, Bank of England.
    3. Jonathan David Ostry & Atish R. Ghosh & Karl Friedrich Habermeier & Marcos Chamon & Mahvash Saeed Qureshi & Dennis B. S. Reinhardt, 2010. "Capital Inflows," IMF Staff Position Notes, International Monetary Fund 2010/04, International Monetary Fund.
    4. Jonathan David Ostry & Atish R. Ghosh & Karl Friedrich Habermeier & Luc Laeven & Marcos Chamon & Mahvash Saeed Qureshi & Annamaria Kokenyne, 2011. "Managing Capital Inflows," IMF Staff Discussion Notes, International Monetary Fund 11/06, International Monetary Fund.
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