Should Capital Flows Be Regulated? A Look at the Issues and Policies

Islam, Roumeen

World Bank, Washington, DC

关键词: ADVERSE CONSEQUENCES;    AUTONOMY;    BALANCE OF PAYMENTS;    BANK LENDING;    BANK RESERVES;   

DOI  :  10.1596/1813-9450-2293
RP-ID  :  WPS2293

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

The author argues that externalities infinancial markets, implicit and explicit guarantees onfinancial transactions, and information asymmetries infinancial markets that may exacerbate contagion provide arationale for a government role in managing the riskassociated with cross-border capital flows. Governments cancomplement private sector risk management with measures thathelp deal with the volatility of capital flows. Thesemeasures include those that control the type and volume ofcapital flows and those that help investors make betterinvestment decisions, and that may reduce herding behavior,such as better information provision. The main instrumentsthat have been tried or recommended since the onset of therecent financial crises can be grouped in severalcategories. 1) Debt management: The composition, maturitystructure, and level of external debt have played animportant role in financial crises. High short-term debtrelative to liquid assets has been found to be consistentlycorrelated with financial crises in recent times.Governments can affect the level of debt (including privatedebt) and its composition, though the mix of policies theyuse will vary. Prudential regulation in the financialsector, corporate sector regulation, and restrictions oncapital movements have all been used with varying success tochange the level and composition of external debt. 2) Othermacroeconomic policies: Most countries that have sufferedmacroeconomic crises have had fixed exchange rate systems;some have not. But whether or not a country has a fixedexchange rate is not the relevant question. The question isinstead whether there is reason to expect a significantweakening of the currency, possibly as a result of a changein policy stance. Large real exchange rate appreciationshave been among the main reasons for runs on currency;macroeconomic policy needs to be aimed at managing these.With a fixed exchange rate regime, flexibility must bemaintained elsewhere in the economy. Policymakers may needto make tradeoffs between price and output stability oncemarket jitters have set in. There is no single right answerto the question of which to emphasize more at a given time;it depends on a country's circumstances. 3) Riskmanagement in the financial sector: The health of thefinancial sector is related to the government's fiscalposition, its macroeconomic policies, and financial crises.The regulatory and supervisory frameworks in developingcountries need to be adapted to the special features ofthese markets. Many developing countries are subject tofrequent trade and capital account shocks, while lacking themeans to deal with these shocks, such as adequate insurancemarkets. This situation may call for policies that nor onlyaffect the incentives of lenders, but also help manage riskmore directly. Examples of such policies include maturity,and liquidity requirements. 4) Information and transparency:More disclosure of information and improvements in thequality of that information could reduce the volatility thatarises from herding behavior. Ex ante, they may also have abeneficial effect on the allocation of capital.