The initial post World War II pursuit ofcapital account liberalization (CAL) by advanced economieswas Europe-centric, with roots in a broader political ratherthan economic agenda of greater European integration. Incontinental Europe, CAL was addressed mostly through theadoption of multilateral instruments and codes. In contrast,CAL by the United States and United Kingdom was pursuedunilaterally, motivated by their status as global reservecurrency issuers and global financial centers. China'ssituation is fundamentally different. China today has noequivalent to the European political motivation for CAL orthe domestically driven financial motivation of the UnitedStates or the United Kingdom. And while China may havelong-term aspirations to be a global reserve currencyissuer, the extent to which it internationalizes itscurrency is constrained by powerful domestic economic andpolitical interests that continue to benefit from anexport-led growth model underpinned by a pegged andundervalued exchange rate, both of which are difficult tomaintain with an open capital account. AlongsideChina's overarching concern with the maintenance offinancial and economic stability, these factors imply adifferent path for China than paths taken by advancedeconomies, with significant acceleration in the gradual paceof liberalization unlikely without accelerated developmentof domestic constituencies that traditionally support CAL.
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