Capital Account Liberalization and Financial Sector Stability

April 12, 2002

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Capital Account Liberalization and Financial Sector Stability, (USA: International Monetary Fund, 2002) accessed November 22, 2024

Summary

This paper analyzes the linkages between capital account liberalization and other policies influencing financial sector stability. Drawing on country experiences, the paper develops an operational framework for sequencing and coordinating capital account liberalization with other policies aimed at maintaining financial sector stability. Based on the general principles, a methodology for sequencing capital account liberalization is presented in this paper. This methodology, which is illustrated by an example, involves an assessment of capital controls and macroeconomic and financial sector vulnerabilities, and the design of a plan for sequencing capital account liberalization with financial sector reforms and other policies. Financial systems that have been weakened by inappropriate government involvement also face additional risks when operating in international financial markets. The absence of significant macroeconomic imbalances and the high level of official international reserves at the outset of the crisis also appear to be important factors preventing a full-blown exchange crisis. Nevertheless, the prolongation of the crisis lowered economic growth and ultimately led to a recession and increased the total cost of the crisis resolution.

Subject: Balance of payments, Banking, Capital account liberalization, Capital flows, Commercial banks, Economic sectors, Financial crises, Financial institutions, Financial sector, Foreign exchange

Keywords: Africa, Bank, Capital account liberalization, Capital account liberalization, Capital flows, Commercial banks, Financial sector, Financial system, Foreign currency, Global, Liberalization, Liberalization process, Market, Market discipline, Market liquidity, North America, OP, Policy advice

Publication Details

Pages:

108
Volume:

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DOI:

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Issue:

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Series:

Occasional Paper No. 2002/005
Stock No:

S211EA0000000
ISBN:

9781589060852
ISSN:

0251-6365

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