Policy Brief 15, January 2013

Capital Account Regulations and Investor Protections in Asia.

Since at least the early 1990s, countries that sought to regulate the capital account risked self-inflicted stigma in the international investment arena, even in the face of uncontroverted analytical reasons for their appropriateness.Subsequent events, including the Asian financial crisis in 1997, have not eliminated the stigma risk from capital account controls but the analytical discussion has shifted to when, not if, such controls are warranted.

There are compelling reasons for capital account regulations. One can classify three levels of objectives, of increasing scale and permanence, for capital account regulation:

(1) As a tool for responding to balance of payments crises;
(2) As a tool for regaining and maintaining countercyclical macroeconomic policy space;
(3) As a tool for harnessing resources of the financial sector to support industrial development and the creation of a productive domestic financial sector

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