Guidance Note on The Liberalization and Management of Capital Flows

Policy Papers, December 11, 2023

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Canonical URL: Guidance Note on The Liberalization and Management of Capital Flows

Provides operational guidance to staff on the use of the Fund’s institutional view (IV) on the liberalization and management of capital flows.
Establishes a framework for consistent policy advice and assessments of members’ capital flow policies when relevant for surveillance.
Clarifies that the IV:
- Does not alter the rights and obligations of members under the Fund’s Articles of Agreement or other international agreements.
- Has no mandatory implications for the Fund’s financing role.
Replaces the 2013 guidance note and the 2015 note on further operational considerations and incorporates guidance on new elements introduced in the 2022 review of the IV.
Publication date: December 11, 2023.

Premise: Capital flows are desirable because they can bring substantial benefits for countries, but they may also generate risks.
Role of measures:
- Capital flow management measures (CFMs) can be useful in certain circumstances.
- Measures that are both CFMs and macroprudential measures (MPMs), i.e., CFM/MPMs, can also be useful.
- CFMs and CFM/MPMs should not substitute for warranted macroeconomic adjustment.
Surveillance guidance: Staff should discuss capital flows and related policies in surveillance when:
- These are macro-critical, or
- Spillovers from those policies significantly influence the effective operation of the international monetary system.

Objective: Help countries reap the benefits of capital flows while managing associated risks to preserve macroeconomic and financial stability and avoid significant negative outward spillovers.
Emphasis on:
- Consistent application of the IV in policy advice and assessments.
- Balancing liberalization benefits against potential financial and macroeconomic risks.
- Ensuring CFMs/CFM-MPMs are part of a broader policy package that includes appropriate macroeconomic adjustment.