Review of The Institutional View on The Liberalization and Management of Capital Flows — Background Note on Principles for the Design of Measures to Address Systemic Risks from FX Mismatches
Policy Papers, March 30, 2022
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- Review of The Institutional View on The Liberalization and Management of Capital Flows — Background Note on Principles for the Design of Measures to Address Systemic Risks from FX Mismatches
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Bibliographic details
- Authors: Heedon Kang, Paavo A Miettinen, Erlend Nier, Thorvardur Tjoervi Olafsson, Gurnain Kaur Pasricha
- Published: March 30, 2022
- Series: Policy Papers
- DOI: https://doi.org/10.5089/9798400206238.007
Summary findings
- The note describes the key principles for the design and implementation of preemptive CFM/MPMs.
- Preemptive CFM/MPMs should be:
- effective—so they achieve their intended goal and are not easily circumvented;
- efficient—so they minimize distortions and costs;
- targeted;
- calibrated to risks;
- transparent; and
- as temporary as possible.
- The appropriate design depends on country circumstances, such as institutional and legal constraints, as well as the precise source of the vulnerability.
- Where measures that do not discriminate by residency are available and effective, they should be preferred.
Design considerations and principles
- Effectiveness: measures must achieve intended goals and resist circumvention.
- Efficiency: measures must minimize market distortions and costs.
- Targeting and calibration: design should align with identified risks and be proportionate.
- Transparency: clear communication of objectives, scope, and exit criteria.
- Temporariness: measures should be designed with sunset conditions or exit strategies.
- Country-specific constraints: institutional and legal frameworks shape feasible design choices.
Policy recommendations
- Prefer measures that do not discriminate by residency when they are available and effective.
- Design measures to be both effective and efficient, balancing goal achievement with minimized distortions and costs.
- Ensure measures are targeted, risk-calibrated, transparent, and temporary.
- Tailor design choices to country circumstances, including institutional and legal constraints and the precise source of FX mismatch vulnerability.
Key statistics and publication metadata
- Authors: Heedon Kang, Paavo A Miettinen, Erlend Nier, Thorvardur Tjoervi Olafsson, Gurnain Kaur Pasricha
- Publication date: March 30, 2022
- Pages: 6
- Volume: 2022
- Issue: 011
- Series: Policy Paper No. 2022/011
- DOI: https://doi.org/10.5089/9798400206238.007
- Stock No: PPEA2022011
- ISBN: 9798400206238
- ISSN: 2663-3493
- Subject tags: Balance of payments, Capital flow management, Financial sector policy and analysis, Foreign exchange, Monetary policy, Political economy, Systemic risk
- Keywords: background note 3, Capital flow management, FX maturity mismatch, FX mismatch, principles for the design, Systemic risk, title page
Review of The Institutional View on The Liberalization and Management of Capital Flows — Background Note on Principles for the Design of Measures to Address Systemic Risks from FX Mismatches (Policy Papers, 2022, 011).
Content in this bundle
- Policy Paper