Policy Innovations The central address for a fairer globalization

A publication of the Carnegie Council

Capital Account Controls and Related Measures to Avert Financial Crises

By Ilene Grabel

New Rules for Global Finance, May 24, 2002

This paper was originally presented at the Alternatives to Neoliberalism Conference sponsored by the New Rules for Global Finance Coalition, 23-24 May 2002.

From the Introduction "This policy option memo examines how developing countries can use capital controls to manage capital flows in order to decrease their volatility and avert financial crises. The first section analyzes five types of risks created by exposure to international finance, particularly from the point of view of “emerging countries”. Those risks are currency, flight, fragility, contagion, and sovereignty risk. The factors that aggravate them are summarized in Table 1 in annex. The second section discusses how five categories of measures can mitigate these risks: trip wires and speed bumps, currency transaction taxes, Chile-type restrictions on capital inflows, restrictions on currency convertibility, and publicly-managed mutual funds. Tables 2 and 3 summarize the analysis and assess the potential of each measure to prevent the outbreak of financial crises, mitigate their severity, or prevent their transmission to other countries. The final section draws some conclusions and addresses the issue of capital flight." COPYRIGHT INFO: For permission to use or distribute this paper, please contact the New Rules for Global Finance

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