Advanced Country Experiences with Capital Account Liberalization

Occasional Papers, September 26, 2002

Source details

Canonical URL: Advanced Country Experiences with Capital Account Liberalization

After the industrial countries established current account convertibility in the late1950s, they began to phase out their capital controls.
Their efforts were slow and tentative at first, but built up considerable momentum by the 1980s as market-oriented economic policies gained popularity.
The paper describes how national policymakers’ views of capital controls shifted over time, and how these controls have been closely related to regulation in other policy areas, such as banking and financial markets.
As developing countries seek to liberalize their capital accounts to obtain the benefits of increased integration with the global economy, the paper asks what lessons can be drawn from industrial countries’ diverse experiences with capital controls, and how a country’s liberalization measures can be sequenced to minimize disturbances to its exchange rate and monetary policies.

Sequencing of liberalization measures to minimize disturbances to exchange rate and monetary policies is a central policy question raised by the paper.
The interaction between capital controls and regulations in banking and financial markets is emphasized as a key consideration for policymakers.
The paper implies that gradual, experience-informed liberalization—reflecting the historical slow and tentative approach followed by industrial countries—can inform developing countries’ strategies.

Subject: Balance of payments, Capital account liberalization, Capital controls, Capital flows, Capital inflows, Exchange rates, Foreign exchange
Keywords: Australia and New Zealand, capital, capital account liberalization, Capital account liberalization, Capital controls, Capital flows, Capital inflows, capital liberalization, capital restriction, control, Europe, Exchange rates, Global, liberalization, liberalization measure, liberalization process, market, monetary policy, OECD code, OP