## 3. At the same time, if members have obligations to liberalize capital flows under other agreements

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---

### IMF definitions and scope
- CFMs refer to measures that are designed to limit capital flows, and encompass both measures that discriminate on the basis of residency and those that do not.
- MPMs refer to measures that are designed to limit systemic financial risks, including risks associated with capital flows.
- The IMF’s institutional view on the liberalization and management of capital flows and the IMF paper on “Key Aspects of Macroprudential Policy” provide the basis for assessing measures as CFMs and MPMs and their appropriateness in IMF surveillance and policy advice.

### IMF approach to measures that are both CFMs and MPMs
- Mandate and frameworks:
  - The IMF has a mandate to promote the economic and financial stability of its members and the effective operation of the international monetary system.
  - Frameworks for capital flow management and macroprudential policies aim at supporting domestic and global stability.
  - The institutional view builds on countries’ experiences, analytical research and policy papers, Executive Board discussions, the G20’s “Coherent Conclusions for the Management of Capital Flows”, and other work.
- Overlap and common principles when measures are both CFMs and MPMs:
  - Avoid using the measures as a substitute for necessary macroeconomic adjustment.
  - Use the policy instruments that are the most effective, efficient, and direct, and the least distortive, in addressing the policy objective.
  - Seek to treat residents and nonresidents in an evenhanded manner.
- Temporary and longer-term use:
  - Measures that are both CFMs and MPMs can be appropriate in certain circumstances.
  - When these circumstances abate, the measures should generally be removed.
  - There may be scope to maintain certain measures over the longer term for managing systemic financial risks, but their usefulness relative to their costs must be evaluated on an ongoing basis, and consideration given to whether there is an alternative way to address the prudential concern that is not designed to limit capital flows.

### Application and assessment of such measures
- Determination:
  - When a measure is designed to limit capital inflows in order to address systemic financial risk stemming from such flows, it is considered both a CFM and an MPM.
  - Assessment requires analysis of the design of the measure and country-specific circumstances, including the context in which the measure was introduced.
- Coverage and surveillance:
  - The IMF’s coverage of measures that are both CFMs and MPMs is guided primarily by surveillance considerations; such measures are discussed in staff reports when they have implications for a member’s domestic stability or for global stability.
  - The IMF does not formally assess each measure the OECD would cover because of this surveillance focus.

### IMF and OECD approaches: selected aspects and differences
- Rights and obligations:
  - The IMF’s Articles of Agreement do not impose an obligation on member countries to liberalize their capital account policies, while recognizing that members have the right (albeit not unlimited) to “exercise such controls as are necessary to regulate international capital movements.”
  - The institutional view does not alter members’ rights and obligations under the Articles or under other international agreements; conformity with obligations under other agreements continues to be determined solely by the existing provisions of those agreements.
  - The OECD has an international agreement, the Code of Liberalisation of Capital Movements, that sets an objective of progressive liberalization among its adherents and requires adherents to notify and be available for consultations with peers regarding capital flow restrictions between residents and nonresidents that are introduced or re-imposed.
- Definition difference:
  - IMF approach: an MPM is also a CFM if the measure is designed to limit capital flows.
  - OECD Code: covers measures which are restrictions under the Code—measures that specifically target and limit capital flow operations included in the operations’ lists of the Code, irrespective of declared intent.
- Coverage difference:
  - IMF focuses coverage on surveillance-relevant measures.
  - OECD Code sets a transparency requirement that requires reporting of all measures that fall within the scope of the Code.

### Proposed steps going forward
- Use of the institutional view:
  - The institutional view can foster a global dialogue on the management of capital flows to promote macroeconomic and financial system stability.
  - Given the IMF’s near universal membership, the institutional view can facilitate consistent policy advice across countries and help inform assessments of measures under international agreements, including the OECD Code.
  - The institutional view is intended to be flexible and to incorporate new experience, analysis, and empirical evidence going forward.
- Engagement with other institutions:
  - IMF staff will continue exchanges with the OECD Secretariat regarding policies related to capital flows, including in cases where the Fund may support measures that can require derogations or reservations by adherents to the OECD Code.
  - Staff participation in the Advisory Task Force on the Codes of Liberalisation (ATFC) remains an avenue for exchanging views on capital flow issues.

### Illustrative examples from the selection table: measures considered both CFMs and MPMs (selected items and exact references)
- General note on the table:
  - The table is an illustrative list of possible measures that can be considered as both CFMs and MPMs and is not a recommended or exhaustive list.
  - The IMF assessment is guided by “The Liberalization and Management of Capital Flows: An Institutional View” and “Key Aspects of Macroprudential Policy” and associated staff guidance notes, including the “Staff Guidance Note on Macroprudential Policy—Detailed Guidance on Instruments.”
  - Such measures can have a role in supporting macroeconomic policy adjustment and safeguarding financial system stability in certain circumstances, for example: (i) when the room for adjusting macroeconomic policies is limited; (ii) when the needed policy steps require time, or when the macroeconomic adjustments require time to take effect; (iii) when an inflow surge raises risk of financial system instability; or (iv) when there is heightened uncertainty about the underlying economic stance due to the surge.
- Example 1 — Limit: cap on banks’ foreign exchange derivative contracts set as a percentage of bank capital
  - Purpose: increases the cost of derivative transactions, thereby limiting banks’ reliance on short-term external funding and mitigating systemic liquidity risks associated with banks’ reliance on FX funding and volatile capital inflows.
  - IMF assessment: an MPM because it limits banks’ reliance on short-term external funding and exposure to systemic liquidity risks; though not residency-discriminatory, it is nonetheless designed to limit capital flows and thus considered a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view; section on liquidity tools, para 135 of the detailed staff guidance note on macroprudential policy instruments.
  - OECD assessment relevance: bears on Code obligations to the extent it extends to operations carried-out abroad by resident banks—implicates Liberalisation List B, item XII Operations in foreign exchange. B. Abroad by residents. Adherents may limit the scope of their Code obligations under List B at any time by lodging a reservation. See OECD’s Background Note, section 5: “Illustrative examples”.
- Example 2 — Limit: limit on the daily balance of banks’ short-term (up to one year) liabilities to nonresidents set as a percentage of bank capital
  - Purpose: increases the cost of banks’ use of short-term funding from non-residents beyond a set limit; contains systemic liquidity risk by reducing banks’ reliance on short-term external funding and indirectly dampens excessive credit growth funded by capital inflows.
  - IMF assessment: an MPM because it increases the cost of banks’ reliance on short-term external funding and limits exposure to systemic liquidity risks; because it discriminates between resident and nonresident lenders, it is also a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view; section on liquidity tools, para 135 of the detailed staff guidance note on macroprudential policy instruments.
  - OECD assessment relevance:
    - Liberalisation List A: Item XI. Operation of deposit accounts. A. Operation by non-residents of accounts with resident institutions. Adherents may limit scope of List A obligations by lodging a reservation only when obligations are added, extended or begin to apply; may invoke a derogation to suspend obligations, subject to additional review and reporting requirements.
    - Liberalisation List B: Item V. Operations on money markets. D. Operations abroad by residents; Item VI. Other operations in negotiable instruments and non-securitised claims. D. Operations abroad by residents; Item IX. Financial credits and loans. A. Credits and loans granted by non-residents to residents. Adherents may introduce such measures covered by List B at any time by lodging a reservation.
- Example 3 — Tax: additional buyer’s stamp duty on purchases of certain categories of residential property levied at a higher rate for nonresidents than residents
  - Purpose: mitigates build-up of systemic risk stemming from capital flows to an overheating property market by increasing costs for nonresidents and reducing nonresidents’ housing demand.
  - IMF assessment: an MPM because it limits inflow of foreign capital into the domestic property market and reduces systemic risk associated with property price corrections; discriminates between residents and nonresidents and is also a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view; sections on household sector tools (para 71) and corporate sector tools (para 90) of the detailed staff guidance note on macroprudential policy instruments.
  - OECD assessment relevance: bears on Code obligations under List B, item III Operations in real estate. A. Operations in the country concerned by non-residents. 1. Building or purchase. Adherents may introduce such measures covered by List B at any time by lodging a reservation.
- Example 4 — Tax: bank levy on non-deposit FX liabilities with maturities shorter than one year
  - Purpose: increases the cost of short-term non-core FX funding; introduced in the context of capital flow volatility to limit systemic impact of large movements in capital flows and mitigate systemic liquidity risk associated with banks’ excessive reliance on short-term non-core FX funding and volatile capital flows.
  - IMF assessment: an MPM because it limits banks’ reliance on short-term external funding and exposure to systemic liquidity risk; although not residency-discriminatory, given circumstances and announced objective it is nonetheless designed to limit capital flows and is considered a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view.

### Box 2, page 21 of the institutional view; and Box 2, page 21 of the institutional view
- Scope and legal bearings of currency-denomination and settlement limits:
  - To the extent that the measure limits the freedom for residents to freely decide on the use of currency for denomination and settlement of operations with non-residents, the measure has a bearing on Code obligations under:
    - Liberalisation List B:
      - Item V, Operations on money markets. D. Operations abroad by residents.
      - Item VI, Other operations in negotiable instruments and non-securitised claims. D. Operations abroad by residents.
      - Item IX, Financial credits and loans. A. Credits and loans granted by non-residents to residents.
  - Adherents may introduce such measures, covered by List B, at any time by lodging a reservation.
  - Specific measures may also have a bearing on operations covered by Item X, Sureties, guarantees and financial back-up facilities of the General List, with items falling under both liberalisation lists.

- Reserve requirement on domestic banks’ foreign currency swap and forward transactions with nonresidents
  - Type: Reserve requirement on domestic banks’ foreign currency swap and forward transactions with nonresidents.
  - Purpose and effect:
    - The measure increases the cost to domestic banks of foreign currency swap and forward transactions with nonresidents.
    - The reserve requirement mitigates systemic liquidity risk related to increasing currency and maturity mismatches on banks’ balance sheets driven by short-term capital inflows.
  - Rationale for classification:
    - The measure is an MPM because limits systemic liquidity risks related to increasing currency and maturity mismatches on banks’ balance sheets caused by short term capital inflows.
    - Since the measure discriminates between residents and nonresidents, it is also considered a CFM.
  - Assessment reference:
    - Assessment is based on Annex II, page 40 and Box 2, page 21 of the institutional view; and the section on liquidity tools, para 135 of the detailed staff guidance note on macroprudential policy instruments.
  - Legal bearings (extended operations abroad by resident banks):
    - The measure has a bearing on Code obligations only to the extent that it extends to operations carried-out abroad by resident banks, in which case it has a bearing on obligations established under:
      - Liberalisation List B:
        - item XII Operations in foreign exchange. B. Abroad by residents.
        - item VI, Other operations in negotiable instruments and non-securitised claims D. Operations abroad by residents. To the extent that swaps contain also an interest rate element.
        - item VI, Other operations in negotiable instruments and non-securitised claims C. Operations in the country concerned by non-residents. To the extent that swaps contain also an interest rate element and that residents are allowed to carry-out such operations.
    - Adherents may limit the scope of their Code obligations under List B at any time by lodging a reservation.

- Reserve requirement on banks’ short-term external obligations (three years or less)
  - Type: Reserve requirement on banks’ credit lines and other external obligations with nonresidents of three years or less in maturities.
  - Purpose and effect:
    - The measure increases the cost of banks’ reliance on external funding.
    - The reserve requirement prevents the build-up of systemic risk associated with FX lending in the context of a highly dollarized economy and strong capital inflows.
    - The measure mitigates exposure of the financial sector to systemic risks associated with currency mismatches on banks’ balance sheets and a sudden stop in capital flows.
  - Rationale for classification:
    - The measure is an MPM because it increases the cost of banks’ reliance on external funding and the exposure of the financial sector to systemic risks associated with currency mismatches on banks’ balance sheets and a sudden stop in capital flows.
    - Since the measure discriminates between resident and nonresident lenders, it is also considered a CFM.
  - Assessment reference:
    - Assessment is based on Annex II, page 40 and Box 2, page 21 of the institutional view; and the sections on tools that target foreign exchange loans (para 109) and liquidity tools (para 135) of the detailed staff guidance note on macroprudential policy instruments.
  - Legal bearings on Code obligations:
    - The measure has a bearing on Code obligations under:
      - Liberalisation List A:
        - Item IV, Operations in securities on capital markets. D. Operations abroad by residents.
        - Item XI. Operation of deposit accounts. A. Operation by non-residents of accounts with resident institutions.
      - Adherents may limit the scope of their Code obligations under List A by lodging a reservation only when obligations are added, extended or begin to apply.
      - Adherents may invoke a derogation to suspend their obligations, subject to additional review and reporting requirements (see OECD’s Background Note).
      - Liberalisation List B:
        - Item V, Operations on money markets. D. Operations abroad by residents.
        - Item VI, Other operations in negotiable instruments and non-securitised claims. D. Operations abroad by residents.
        - Item IX, Financial credits and loans. A. Credits and loans granted by non-residents to residents.
      - Adherents may introduce such measures, covered by List B, at any time by lodging a reservation.
    - Specific measures may also have a bearing on operations covered by Item X, Sureties, guarantees and financial back-up facilities of the General List, with items falling under both liberalisation lists.

*Prepared by an interdepartmental IMF staff team, with exchanges between IMF and OECD staff and input from the BIS and FSB.*

### 3. At the same time, if members have obligations to liberalize capital flows under other agreements

### 3. At the same time, if members have obligations to liberalize capital flows under other agreements

### IMF definitions and scope
- CFMs refer to measures that are designed to limit capital flows, and encompass both measures that discriminate on the basis of residency and those that do not.
- MPMs refer to measures that are designed to limit systemic financial risks, including risks associated with capital flows.
- The IMF’s institutional view on the liberalization and management of capital flows and the IMF paper on “Key Aspects of Macroprudential Policy” provide the basis for assessing measures as CFMs and MPMs and their appropriateness in IMF surveillance and policy advice.

### IMF approach to measures that are both CFMs and MPMs
- Mandate and frameworks:
  - The IMF has a mandate to promote the economic and financial stability of its members and the effective operation of the international monetary system.
  - Frameworks for capital flow management and macroprudential policies aim at supporting domestic and global stability.
  - The institutional view builds on countries’ experiences, analytical research and policy papers, Executive Board discussions, the G20’s “Coherent Conclusions for the Management of Capital Flows”, and other work.
- Overlap and common principles when measures are both CFMs and MPMs:
  - Avoid using the measures as a substitute for necessary macroeconomic adjustment.
  - Use the policy instruments that are the most effective, efficient, and direct, and the least distortive, in addressing the policy objective.
  - Seek to treat residents and nonresidents in an evenhanded manner.
- Temporary and longer-term use:
  - Measures that are both CFMs and MPMs can be appropriate in certain circumstances.
  - When these circumstances abate, the measures should generally be removed.
  - There may be scope to maintain certain measures over the longer term for managing systemic financial risks, but their usefulness relative to their costs must be evaluated on an ongoing basis, and consideration given to whether there is an alternative way to address the prudential concern that is not designed to limit capital flows.

### Application and assessment of such measures
- Determination:
  - When a measure is designed to limit capital inflows in order to address systemic financial risk stemming from such flows, it is considered both a CFM and an MPM.
  - Assessment requires analysis of the design of the measure and country-specific circumstances, including the context in which the measure was introduced.
- Coverage and surveillance:
  - The IMF’s coverage of measures that are both CFMs and MPMs is guided primarily by surveillance considerations; such measures are discussed in staff reports when they have implications for a member’s domestic stability or for global stability.
  - The IMF does not formally assess each measure the OECD would cover because of this surveillance focus.

### IMF and OECD approaches: selected aspects and differences
- Rights and obligations:
  - The IMF’s Articles of Agreement do not impose an obligation on member countries to liberalize their capital account policies, while recognizing that members have the right (albeit not unlimited) to “exercise such controls as are necessary to regulate international capital movements.”
  - The institutional view does not alter members’ rights and obligations under the Articles or under other international agreements; conformity with obligations under other agreements continues to be determined solely by the existing provisions of those agreements.
  - The OECD has an international agreement, the Code of Liberalisation of Capital Movements, that sets an objective of progressive liberalization among its adherents and requires adherents to notify and be available for consultations with peers regarding capital flow restrictions between residents and nonresidents that are introduced or re-imposed.
- Definition difference:
  - IMF approach: an MPM is also a CFM if the measure is designed to limit capital flows.
  - OECD Code: covers measures which are restrictions under the Code—measures that specifically target and limit capital flow operations included in the operations’ lists of the Code, irrespective of declared intent.
- Coverage difference:
  - IMF focuses coverage on surveillance-relevant measures.
  - OECD Code sets a transparency requirement that requires reporting of all measures that fall within the scope of the Code.

### Proposed steps going forward
- Use of the institutional view:
  - The institutional view can foster a global dialogue on the management of capital flows to promote macroeconomic and financial system stability.
  - Given the IMF’s near universal membership, the institutional view can facilitate consistent policy advice across countries and help inform assessments of measures under international agreements, including the OECD Code.
  - The institutional view is intended to be flexible and to incorporate new experience, analysis, and empirical evidence going forward.
- Engagement with other institutions:
  - IMF staff will continue exchanges with the OECD Secretariat regarding policies related to capital flows, including in cases where the Fund may support measures that can require derogations or reservations by adherents to the OECD Code.
  - Staff participation in the Advisory Task Force on the Codes of Liberalisation (ATFC) remains an avenue for exchanging views on capital flow issues.

### Illustrative examples from the selection table: measures considered both CFMs and MPMs (selected items and exact references)
- General note on the table:
  - The table is an illustrative list of possible measures that can be considered as both CFMs and MPMs and is not a recommended or exhaustive list.
  - The IMF assessment is guided by “The Liberalization and Management of Capital Flows: An Institutional View” and “Key Aspects of Macroprudential Policy” and associated staff guidance notes, including the “Staff Guidance Note on Macroprudential Policy—Detailed Guidance on Instruments.”
  - Such measures can have a role in supporting macroeconomic policy adjustment and safeguarding financial system stability in certain circumstances, for example: (i) when the room for adjusting macroeconomic policies is limited; (ii) when the needed policy steps require time, or when the macroeconomic adjustments require time to take effect; (iii) when an inflow surge raises risk of financial system instability; or (iv) when there is heightened uncertainty about the underlying economic stance due to the surge.
- Example 1 — Limit: cap on banks’ foreign exchange derivative contracts set as a percentage of bank capital
  - Purpose: increases the cost of derivative transactions, thereby limiting banks’ reliance on short-term external funding and mitigating systemic liquidity risks associated with banks’ reliance on FX funding and volatile capital inflows.
  - IMF assessment: an MPM because it limits banks’ reliance on short-term external funding and exposure to systemic liquidity risks; though not residency-discriminatory, it is nonetheless designed to limit capital flows and thus considered a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view; section on liquidity tools, para 135 of the detailed staff guidance note on macroprudential policy instruments.
  - OECD assessment relevance: bears on Code obligations to the extent it extends to operations carried-out abroad by resident banks—implicates Liberalisation List B, item XII Operations in foreign exchange. B. Abroad by residents. Adherents may limit the scope of their Code obligations under List B at any time by lodging a reservation. See OECD’s Background Note, section 5: “Illustrative examples”.
- Example 2 — Limit: limit on the daily balance of banks’ short-term (up to one year) liabilities to nonresidents set as a percentage of bank capital
  - Purpose: increases the cost of banks’ use of short-term funding from non-residents beyond a set limit; contains systemic liquidity risk by reducing banks’ reliance on short-term external funding and indirectly dampens excessive credit growth funded by capital inflows.
  - IMF assessment: an MPM because it increases the cost of banks’ reliance on short-term external funding and limits exposure to systemic liquidity risks; because it discriminates between resident and nonresident lenders, it is also a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view; section on liquidity tools, para 135 of the detailed staff guidance note on macroprudential policy instruments.
  - OECD assessment relevance:
    - Liberalisation List A: Item XI. Operation of deposit accounts. A. Operation by non-residents of accounts with resident institutions. Adherents may limit scope of List A obligations by lodging a reservation only when obligations are added, extended or begin to apply; may invoke a derogation to suspend obligations, subject to additional review and reporting requirements.
    - Liberalisation List B: Item V. Operations on money markets. D. Operations abroad by residents; Item VI. Other operations in negotiable instruments and non-securitised claims. D. Operations abroad by residents; Item IX. Financial credits and loans. A. Credits and loans granted by non-residents to residents. Adherents may introduce such measures covered by List B at any time by lodging a reservation.
- Example 3 — Tax: additional buyer’s stamp duty on purchases of certain categories of residential property levied at a higher rate for nonresidents than residents
  - Purpose: mitigates build-up of systemic risk stemming from capital flows to an overheating property market by increasing costs for nonresidents and reducing nonresidents’ housing demand.
  - IMF assessment: an MPM because it limits inflow of foreign capital into the domestic property market and reduces systemic risk associated with property price corrections; discriminates between residents and nonresidents and is also a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view; sections on household sector tools (para 71) and corporate sector tools (para 90) of the detailed staff guidance note on macroprudential policy instruments.
  - OECD assessment relevance: bears on Code obligations under List B, item III Operations in real estate. A. Operations in the country concerned by non-residents. 1. Building or purchase. Adherents may introduce such measures covered by List B at any time by lodging a reservation.
- Example 4 — Tax: bank levy on non-deposit FX liabilities with maturities shorter than one year
  - Purpose: increases the cost of short-term non-core FX funding; introduced in the context of capital flow volatility to limit systemic impact of large movements in capital flows and mitigate systemic liquidity risk associated with banks’ excessive reliance on short-term non-core FX funding and volatile capital flows.
  - IMF assessment: an MPM because it limits banks’ reliance on short-term external funding and exposure to systemic liquidity risk; although not residency-discriminatory, given circumstances and announced objective it is nonetheless designed to limit capital flows and is considered a CFM.
  - Assessment references: Annex II, page 40 and Box 2, page 21 of the institutional view.

*Prepared by an interdepartmental IMF staff team, with exchanges between IMF and OECD staff and input from the BIS and FSB.*

### Box  2,  page  21  of  the  institutional  view;  and

### Box 2, page 21 of the institutional view

### Scope and legal bearings of currency-denomination and settlement limits
- To the extent that the measure limits the freedom for residents to freely decide on the use of currency for denomination and settlement of operations with non-residents, the measure has a bearing on Code obligations under:
  - Liberalisation List B:
    - Item V, Operations on money markets. D. Operations abroad by residents.
    - Item VI, Other operations in negotiable instruments and non-securitised claims. D. Operations abroad by residents.
    - Item IX, Financial credits and loans. A. Credits and loans granted by non-residents to residents.
- Adherents may introduce such measures, covered by List B, at any time by lodging a reservation.
- Specific measures may also have a bearing on operations covered by Item X, Sureties, guarantees and financial back-up facilities of the General List, with items falling under both liberalisation lists.

### Reserve requirement on domestic banks’ foreign currency swap and forward transactions with nonresidents
- Type: Reserve requirement on domestic banks’ foreign currency swap and forward transactions with nonresidents.
- Purpose and effect:
  - The measure increases the cost to domestic banks of foreign currency swap and forward transactions with nonresidents.
  - The reserve requirement mitigates systemic liquidity risk related to increasing currency and maturity mismatches on banks’ balance sheets driven by short-term capital inflows.
- Rationale for classification:
  - The measure is an MPM because limits systemic liquidity risks related to increasing currency and maturity mismatches on banks’ balance sheets caused by short term capital inflows.
  - Since the measure discriminates between residents and nonresidents, it is also considered a CFM.
- Assessment reference:
  - Assessment is based on Annex II, page 40 and Box 2, page 21 of the institutional view; and the section on liquidity tools, para 135 of the detailed staff guidance note on macroprudential policy instruments.
- Legal bearings (extended operations abroad by resident banks):
  - The measure has a bearing on Code obligations only to the extent that it extends to operations carried-out abroad by resident banks, in which case it has a bearing on obligations established under:
    - Liberalisation List B:
      - item XII Operations in foreign exchange. B. Abroad by residents.
      - item VI, Other operations in negotiable instruments and non-securitised claims D. Operations abroad by residents. To the extent that swaps contain also an interest rate element.
      - item VI, Other operations in negotiable instruments and non-securitised claims C. Operations in the country concerned by non-residents. To the extent that swaps contain also an interest rate element and that residents are allowed to carry-out such operations.
  - Adherents may limit the scope of their Code obligations under List B at any time by lodging a reservation.

### Reserve requirement on banks’ short-term external obligations (three years or less)
- Type: Reserve requirement on banks’ credit lines and other external obligations with nonresidents of three years or less in maturities.
- Purpose and effect:
  - The measure increases the cost of banks’ reliance on external funding.
  - The reserve requirement prevents the build-up of systemic risk associated with FX lending in the context of a highly dollarized economy and strong capital inflows.
  - The measure mitigates exposure of the financial sector to systemic risks associated with currency mismatches on banks’ balance sheets and a sudden stop in capital flows.
- Rationale for classification:
  - The measure is an MPM because it increases the cost of banks’ reliance on external funding and the exposure of the financial sector to systemic risks associated with currency mismatches on banks’ balance sheets and a sudden stop in capital flows.
  - Since the measure discriminates between resident and nonresident lenders, it is also considered a CFM.
- Assessment reference:
  - Assessment is based on Annex II, page 40 and Box 2, page 21 of the institutional view; and the sections on tools that target foreign exchange loans (para 109) and liquidity tools (para 135) of the detailed staff guidance note on macroprudential policy instruments.
- Legal bearings on Code obligations:
  - The measure has a bearing on Code obligations under:
    - Liberalisation List A:
      - Item IV, Operations in securities on capital markets. D. Operations abroad by residents.
      - Item XI. Operation of deposit accounts. A. Operation by non-residents of accounts with resident institutions.
    - Adherents may limit the scope of their Code obligations under List A by lodging a reservation only when obligations are added, extended or begin to apply.
    - Adherents may invoke a derogation to suspend their obligations, subject to additional review and reporting requirements (see OECD’s Background Note).
    - Liberalisation List B:
      - Item V, Operations on money markets. D. Operations abroad by residents.
      - Item VI, Other operations in negotiable instruments and non-securitised claims. D. Operations abroad by residents.
      - Item IX, Financial credits and loans. A. Credits and loans granted by non-residents to residents.
    - Adherents may introduce such measures, covered by List B, at any time by lodging a reservation.
  - Specific measures may also have a bearing on operations covered by Item X, Sureties, guarantees and financial back-up facilities of the General List, with items falling under both liberalisation lists.

*Source: Box 2, page 21 of the institutional view; and the sections on liquidity tools (para 135) and tools that target foreign exchange loans (para 109) of the detailed staff guidance note on macroprudential policy instruments.*

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