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Pitfalls and Potential of Financial Liberilasation Patterns in Neighboring Areas

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  • Maxwell J. Fry

    (Centre for Central Banking Studies, Bank of England and Tokai Bank Professor of International Finance, University of Birmingham, U.K.)

Abstract

Three potential pitfalls may beset Cyprus’s financial liberalisation programme. To avoid them, gaps in financial structures must first be identified and addressed; financial stability could be jeopardized in the absence of a broad variety of financial markets and financial institutions. Second, the imposition of reserve requirements on foreign as well as domestic deposits together with some discouragement of consumer credit may be the best practical solution should capital account liberalisation produce excessive capital inflows. Third, pathological borrowers with perverse credit demands must be removed form the pool of potential borrowers and banks put on a sound footing to ensure that interest-rate liberalisation produces beneficial allocative and inflation-reducing effects.

Suggested Citation

  • Maxwell J. Fry, 1998. "Pitfalls and Potential of Financial Liberilasation Patterns in Neighboring Areas," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 2(1), pages 1-28, Summer.
  • Handle: RePEc:ekn:ekonom:v:2:y:1998:i:1:p:1-28
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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