IDEAS home Printed from https://ideas.repec.org/a/tcb/cebare/v5y2005i2p1-38.html
   My bibliography  Save this article

Recent Experiences with Capital Controls : Is There A Lesson for Turkey?

Author

Listed:
  • Melike Altinkemer

Abstract

Capital flows in the 1990's and their sudden reversals and the resulting turmoil created in financial markets together with big financial losses, revived the interests in capital controls. There are inherent destabilizing factors in international financial system and Tobin had seen that as early as 1972 when he suggested levying a tax on financial transactions as a way of smoothing out destabilizing factors, even though in its original formulation it was not applied anywhere due to its impracticality. Various capital inflow and outflow control experiences and recent crisis indicated that controls, even though are only second best, can be resorted temporarily, provided that the time gained is productively used for making the necessary adjustments in the inconsistent policy mix that brought about the controls in the first place. In such a context, for countries with high domestic debt like Turkey, where, even the intervention itself can be a source of speculation, an exchange rate band, in which the limits of the band is defended through taxing the violators of the band rather than central bank intervention can be an alternative. Such a strategy would be beneficial if Turkey uses the time to address the structural issues, rather than relaxes under the protective cushion of the tax. This method is advantageous to the sterilized intervention presently used to decrease exchange rate volatility arising from speculative inflows, first because, it will keep the central bank reserves intact, second it will force the violators of the exchange rate band to share the responsibility of their violation. If temporary controls are very carefully coordinated with the appropriate supporting policies, they could replace IMF programs with financial assistance, at least till the new and improved international financial system becomes operational.

Suggested Citation

  • Melike Altinkemer, 2005. "Recent Experiences with Capital Controls : Is There A Lesson for Turkey?," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 5(2), pages 1-38.
  • Handle: RePEc:tcb:cebare:v:5:y:2005:i:2:p:1-38
    as

    Download full text from publisher

    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2005/Volume+5-2/
    Download Restriction: no

    References listed on IDEAS

    as
    1. Claessens, Stijn & Dooley, Michael P & Warner, Andrew, 1995. "Portfolio Capital Flows: Hot or Cold?," World Bank Economic Review, World Bank Group, vol. 9(1), pages 153-174, January.
    2. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1995. "Two Cases for Sand in the Wheels of International Finance," Economic Journal, Royal Economic Society, vol. 105(428), pages 162-172, January.
    3. E.V.K. FitzGerald, 1999. "Policy Issues in Market Based and Non Market Based Measures To Control the Volatility of Portfolio Investment," Development Working Papers 129, Centro Studi Luca d'Agliano, University of Milano.
    4. Edison, Hali J. & Reinhart, Carmen M., 1999. "Capital controls during financial crises: the cases of Malaysia and Thailand," Proceedings, Federal Reserve Bank of San Francisco, issue Sep, pages 1-36.
    5. Eliana Cardoso & Ilan Goldfajn, 1998. "Capital Flows to Brazil: The Endogeneity of Capital Controls," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 161-202, March.
    6. Melike Altinkemer & Nazim Ekinci, 1992. "Capital Account Liberalization : The Case of Turkey," Discussion Papers 9210, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    7. Reinhart, Carmen M. & Smith, R. Todd, 2002. "Temporary controls on capital inflows," Journal of International Economics, Elsevier, vol. 57(2), pages 327-351, August.
    8. Salgado, Maria José S. & Garcia, Márcio G. P. & Medeiros, Marcelo C., 2005. "Monetary Policy During Brazil´s Real Plan: Estimating the Central Bank´s Reaction Function," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 59(1), January.
    9. Kenneth Kasa, 1999. "Time for a Tobin tax?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr9.
    10. Angel Cabrera & Luis Felipe Lagos, 2000. "Monetary Policy in Chile: a black box?," Working Papers Central Bank of Chile 88, Central Bank of Chile.
    11. Akira Ariyoshi & Andrei A Kirilenko & Inci Ötker & Bernard J Laurens & Jorge I Canales Kriljenko & Karl F Habermeier, 2000. "Capital Controls; Country Experiences with Their Use and Liberalization," IMF Occasional Papers 190, International Monetary Fund.
    12. Sukru Binay & Ferhan Salman, 1998. "The Global Crisis and The Turkish Economy," Working Papers 9801, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    13. Sebastian Edwards, 1996. "A Tale of Two Crises: Chile and Mexico," NBER Working Papers 5794, National Bureau of Economic Research, Inc.
    14. Jenny Corbett & David Vines, 1999. "Asian Currency and Financial Crises: Lessons from Vulnerability, Crisis and Collapse," The World Economy, Wiley Blackwell, vol. 22(2), pages 155-177, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Capital Controls; Short Term Speculative Inflows; Tobin Tax; Private Sector Involvement;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tcb:cebare:v:5:y:2005:i:2:p:1-38. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: () or () or (). General contact details of provider: http://edirc.repec.org/data/tcmgvtr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.