Review of The Institutional View on The Liberalization and Management of Capital Flows

Policy Papers, March 30, 2022

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Review of The Institutional View on The Liberalization and Management of Capital Flows

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Bibliographic details

• Published: March 30, 2022
• Series: Policy Papers
• DOI: https://doi.org/10.5089/9798400204593.007

Purpose and scope

• Reviews the Institutional View (IV) on the Liberalization and Management of Capital Flows, adopted in 2012.
• Review informed by:
  • advances in research, notably work on an Integrated Policy Framework (IPF);
  • findings of the 2020 evaluation by the Independent Evaluation Office (IEO) on IMF Advice on Capital Flows;
  • staff’s experience with the implementation of the IV.
• Publication date: March 30, 2022.

Core premises and objectives

• The core premises and objectives of the IV remain unchanged.
• Premises:
  • Capital flows are desirable as they can bring substantial benefits for countries.
  • Capital flow management measures (CFMs) can be useful in certain circumstances but should not substitute for warranted macroeconomic adjustment.
• Objective:
  • Help countries reap the benefits of capital flows while managing associated risks in a way that preserves macroeconomic and financial stability and does not generate significant negative outward spillovers.

Key findings

• The IV continues to provide the basis for consistent advice, and where relevant, assessments on policies related to capital flows.
• Advances in research (including the IPF), the 2020 IEO evaluation, and implementation experience informed the review but did not alter the IV’s core premises or objectives.

Policy guidance and implications

• CFMs:
  • Recognized as potentially useful in certain circumstances.
  • Should not substitute for warranted macroeconomic adjustment.
• Policy sequencing and consistency:
  • The IV aims to guide countries toward policies that balance reaping benefits from capital flows with managing risks to macroeconomic and financial stability.
• Spillovers:
  • Policy implementation should avoid generating significant negative outward spillovers.

Subjects and keywords

• Subject: Balance of payments, Capital flow management, Capital flows, Capital inflows, Foreign exchange, Institutional View on capital flows, Monetary policy, Political economy
• Keywords: Capital flow management, Capital flows, Capital inflows, debt inflow, FX liability, Global, inflow CFMs, Institutional View on capital flows, IPF model, maturity mismatch

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