{
  "title": "Controlled Capital Account Liberalization: A Proposal",
  "publication": "IMF Policy Discussion Papers, October 1, 2005",
  "sourceUrl": "https://www.imf.org/en/publications/imf-policy-discussion-papers/issues/2016/12/31/controlled-capital-account-liberalization-a-proposal-18632",
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  "summary": "In this paper, we develop a proposal for a controlled approach to capital account liberalization for economies experiencing large capital inflows.",
  "sections": [
    {
      "heading": "Proposal overview",
      "content": "- Develops a proposal for a controlled approach to capital account liberalization for economies experiencing large capital inflows.\n- Core mechanism: securitize a portion of capital inflows through closed-end mutual funds that:\n  - issue shares in domestic currency,\n  - use the proceeds to purchase foreign exchange from the central bank,\n  - invest the proceeds abroad."
    },
    {
      "heading": "Mechanism and operational features",
      "content": "- Closed-end mutual funds buy foreign exchange from the central bank using domestic-currency share proceeds.\n- Funds then invest the purchased foreign exchange abroad.\n- Central banks retain control over the timing and quantity of capital outflows via the fund issuance process."
    },
    {
      "heading": "Expected benefits and effects",
      "content": "- Eliminates the fiscal costs of sterilizing those inflows.\n- Gives domestic investors opportunities for international portfolio diversification.\n- Stimulates the development of domestic financial markets.\n- Allows central banks to manage capital outflows in a controlled manner."
    },
    {
      "heading": "Role within broader policy framework",
      "content": "- Can be part of a broader toolkit to liberalize the capital account cautiously when external circumstances are favorable.\n- Not a substitute for:\n  - strengthening of the domestic financial sector,\n  - in some cases, greater exchange rate flexibility.\n- Could help create a supportive environment for those essential reforms."
    },
    {
      "heading": "Key findings and emphases",
      "content": "- Proposal focuses on controlled liberalization during episodes of large capital inflows.\n- Emphasizes central-bank control of outflows and minimizing fiscal sterilization costs.\n- Highlights investor diversification and domestic market development as ancillary benefits.\n\n---\n\n Content in this bundle\n\n- pdp07 - Section 1 and Section 2\n  - pdp07 - Section 1 and Section 2 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - pdp07 - Section 1 and Section 2 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/imf-policy-discussion-papers/issues/2016/12/31/controlled-capital-account-liberalization-a-proposal-18632"
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    "Authors: Eswar S Prasad, Raghuram Rajan",
    "Published: October 1, 2005",
    "Series: IMF Policy Discussion Papers",
    "DOI: https://doi.org/10.5089/9781451975741.003",
    "Develops a proposal for a controlled approach to capital account liberalization for economies experiencing large capital inflows.",
    "Core mechanism: securitize a portion of capital inflows through closed-end mutual funds that:",
    "Closed-end mutual funds buy foreign exchange from the central bank using domestic-currency share proceeds.",
    "Funds then invest the purchased foreign exchange abroad.",
    "Central banks retain control over the timing and quantity of capital outflows via the fund issuance process.",
    "Eliminates the fiscal costs of sterilizing those inflows.",
    "Gives domestic investors opportunities for international portfolio diversification.",
    "Stimulates the development of domestic financial markets.",
    "Allows central banks to manage capital outflows in a controlled manner.",
    "Can be part of a broader toolkit to liberalize the capital account cautiously when external circumstances are favorable.",
    "Not a substitute for:",
    "Could help create a supportive environment for those essential reforms.",
    "Proposal focuses on controlled liberalization during episodes of large capital inflows.",
    "Emphasizes central-bank control of outflows and minimizing fiscal sterilization costs.",
    "Highlights investor diversification and domestic market development as ancillary benefits.",
    "**_pdp07 - Section 1 and Section 2**"
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