Do capital controls deflect capital flows?
Paolo Giordani, Michele Ruta, Hans Weisfeld, Ling Zhu 23 June 2014
Capital controls may help countries limit large and volatile capital inflows, but they may also have spillover effects on other countries. This column discusses recent research showing that inflow restrictions have significant spillover effects as they deflect capital flows to countries with similar economic characteristics.
The size and volatility of capital flows to developing countries have increased significantly in recent years (Figure 1), leading many economists to argue that national policies and multilateral institutions are needed to govern these flows (Forbes and Klein 2013, Blanchard and Ostry 2012). The IMF itself has reviewed its position on the liberalisation and management of capital flows, while recognising that “much further work remains to be done to improve policy coordination in the financial sector” (IMF 2012, p. 28).
China, capital flows, spillovers, South Africa, capital controls, Brazil, Capital inflows, international capital flows
Reform of the international monetary and financial system
Oliver Bush, Katie Farrant 21 December 2011
According to the architects, the latest financial regulations are designed to reduce the risks from large global capital flows – a key driver of the global crisis. But this column argues that such reforms do not go far enough and that the increasing risk of a second global financial crisis stemming from the Eurozone debacle re-emphasises the need for more changes.
Much attention has focused on how to reform financial regulation in light of the most recent crisis (see, for instance, Acharya 2011 on this site). But these reforms alone are unlikely to eliminate all of the risks associated with large global capital flows. Broader reform of the international monetary and financial system is essential.
Global crisis Global governance International finance
financial regulation, international capital flows, international monetary and financial system
The future of international capital flows
William Speller, Gregory Thwaites 21 December 2011
Will international capital flows play a lead role in the next global crisis? This column summarises a new Bank of England study that provides simulations of gross and net capital flows between now and 2050. It shows that however great the challenges policymakers may now face, there are many more to come.
The experience of the past decade has demonstrated the challenges that international capital flows can pose for financial stability. Between 2002 and 2007, annual gross international capital flows rose from 5% to 17% of world GDP, and the network of cross-country financial linkages became increasingly complex (Hoggarth et al. 2010). Net international capital flows also rose sharply over this period, with global current-account imbalances (the sum of global deficits and surpluses) doubling from 3% to 6% of world GDP.
Global crisis International finance Monetary policy
international capital flows