From liberalizing reforms to post-global financial crisis: The IMF’s changing view on capital account liberalization and capital controls
Abstract
The International Monetary Fund’s (IMF) view on capital controls has changed dramatically over the past two and a half decades. The occurrence of several financial crises, including the global crisis in 2007-2008, propelled the institution to partially defend the use of capital controls in order to eliminate certain dysfunctions, such as financial risks and pressures on exchange rate appreciation. Our study shows that this reorientation in the scope of IMF articles was also a response to empirical studies that pointed to flaws in orthodox theory about capital account liberalization, and that investigated the effectiveness of capital controls imposed by emerging economies in the post-global crisis period. However, there is no explicit defense in favor of the use of capital controls and the management of the exchange rate on a permanent basis yet, despite some empirical evidence which has already pointed to the effectiveness of these measures.
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