Tracking The World Economy... - 19/10/2010

IMF Softened Its Stance On Capital Controls
The International Monetary Fund (IMF) has softened its stand on capital controls, as it warned that capital flooding into
Asia could lead to excessive exchange-rate moves, asset bubbles and financial instability. It touted capital controls as
a means to moderate the vast inflows to prevent another financial crisis. The unusual joint endorsement of capital
controls, policies that the IMF has until recently resisted, highlights how the growing gap in the performance of different
parts of the global economy is pushing policymakers in new directions. It also highlighted that, perhaps, allowing currency
to appreciate alone may not be sufficient in doing the job of slowing down capital inflows. This is especially the case
where “carry-trade” activities are quite common due to interest rates that are extremely low in developed countries and
developing as well as emerging economies’ markets are not deep enough to absorb the inflows. The IMF’s remarks came
as governments in Asia and emerging economies are looking for ways to lean against the substantial inflow of foreign
capital

Tracking The World Economy... - 19/10/2010