Should Capital Controls Be Banished?

Date Published:

Apr 1, 1999

Abstract:

Unless certain conditions are met, serious misallocation could occur if capital movements are fully liberalized; and considerable vulnerability is created for economies where the exchange rate is strongly influenced by changes in sentiment by owners — residents as well as non–residents — of liquid assets. Countries in this condition — most of them in today's world — may find themselves having to make an uncomfortable choice between tieing their currencies strongly to a major currency, e.g. with a currency board, and maintaining restrictions on capital movements, particularly those that are subject to rapid changes in sentiment and are easily reversible.

Notes:

Cooper, Richard. "Should Capital Controls Be Banished?" Working Paper 99–09, Weatherhead Center for International Affairs, Harvard University, April 1999.


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