Controls On Capital Movements

Until recently, capital mobility was encouraged across national borders, because it was considered that such capital can seek the highest rate of return. However, recent global financial developments have shown that, due to contagion, the mobility of capital flows can cause severe financial imbalances. In the context of globalization, liberalization or maintaining controls on capital flows is a current topic, more debated by economists. This topic is very important, due to the impact of liberalization decision or maintaining controls on capital flows has on the overall macroeconomic framework. The paper analyzes the relationship between capital flows'(tm) control and the income per capita, the degree of central bank independence, democracy country, the foreign exchange regime. Also, it analyzes the effectiveness in time of capital controls, taking account of financial system development and potential risks of instability. Over time, it was observed that a period in which they have imposed restrictions on capital movements was followed by a removal of such restrictions, and vice versa. Cyclic change of capital movements regime corresponds to the cyclic evolution of the global economy. Full capital account liberalization led to the emergence of currency and financial crises, so that the idea of maintaining controls on capital is not rejected by economists. After a full liberalization of capital flows, there is a change in the mentality of an increasing number of economists, who support the maintenance of controls, in a gradual liberalization.