The process of relaxing capital controls

Author: Xing Yujing
Publisher:
Publish Date: 2004-03-01
Features: In the irreversible process of advancing economic and financial globalization, capital control systems must adjust accordingly, which is an undeniable fact. The direction of this adjustment must inevitably be the gradual liberalization of capital controls. The process of capital control systems adapting to the requirements of economic and financial globalization and gradually moving towards liberalization or adjustment is also a process of evolution and innovation for capital control systems. The specific path and methods of institutional research depend on how the supply (primarily the government) of institutional innovation in a specific economic and financial environment identifies, measures, and then adaptively adjusts and innovates in response to institutional innovation demands.
Typically, research on capital control systems often focuses on micro-level analysis of specific control measures or, from the perspective of institutional economics, analyzes the institutional factors that influence the evolution of capital control systems. However, the liberalization of capital controls in developing countries, including China, clearly involves a broad scope and simultaneously affects both macroeconomic operations and microeconomic decisions. In this process, macro authorities must fully consider the potential macroeconomic impacts when determining measures for the evolution of capital control systems. They must analyze specific capital control plans, policies for monitoring capital flight, capital account convertibility plans, exchange rate systems, risks caused by international economic fluctuations and their mitigation, macroeconomic policy coordination, and more, based on the intrinsic logic of the evolution of capital control systems and different domestic and international economic and financial conditions.
Given this, this book focuses on the macro-level process of the evolution of capital control systems under economic and financial globalization, emphasizing the macroeconomic impacts and constraints of such evolution. Grounded in China's current progress in establishing an open economy and its practical demands for liberalizing capital controls, the book draws on the lessons learned from the global process of capital control liberalization to analyze potential macroeconomic and financial issues in this process step by step. It systematically conducts macro-level and process-based analysis of the evolution of capital control systems.
The book systematically studies the issue of capital flight during the process of capital control liberalization. Building on defining the concept of capital flight, it compares different measurement methods and results, analyzes the motivations behind capital flight and its economic impacts, and proposes corresponding macroeconomic policies. It proposes a repositioning of capital account convertibility and, based on this, puts forward new ideas for advancing capital account convertibility. It introduces a new perspective on the choice of an "intermediate exchange rate system" grounded in the process of capital control liberalization. From an international comparative perspective, it outlines the trends in the development of capital controls, analyzes the economic impacts of capital controls under different institutional constraints and their effects on trade balances.
The book analyzes three channels and specific mechanisms of international balance of payments crisis contagion and proposes policy choices for crisis prevention. It puts forward the main ideas for macroeconomic policy coordination during the process of capital control liberalization. It suggests that the development trend of sterilization policies during capital control liberalization should be to develop financial markets, cultivate market-based sterilization instruments, emphasize coordination among different policies, strive to reduce sterilization costs, and gradually reduce reliance on sterilization interventions. It examines the interaction between foreign exchange markets and international financial markets, particularly securities markets, during capital control liberalization, and proposes that policy coordination among capital markets, foreign exchange markets, and money markets must be fully addressed in the process of liberalizing capital controls.