Who Needs to Open the Capital Account?

Since the 2008 financial crisis and the ensuing global recession, unemployment has risen almost everywhere, and governments have become increasingly wary of allowing capital to freely cross international boundaries, partly because they see such movement as a potential source of instability and partly because capital inflows can strengthen currencies, which can further harm employment. The authors of this study examine various efforts to restrict both inflows and outflows and are left troubled by the potential effects of overly aggressive restrictions. They distinguish between good and bad controls on cross-border movements of capital, although they concede the distinction is not always clear. They also urge the negotiation of an international code of conduct -- analogous to the General Agreement on Tariffs and Trade enforced by the World Trade Organization -- that would establish rules (or at least guidelines) to prevent undesirable capital controls, particularly those that distort trade, and actively encourage desirable ones, particularly those that foster financial stability.

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