Capital Controls: International Experience and Chinese Practice
|School||Zhejiang Technology and Business University|
|Keywords||capital control capital account convertibility capital flows|
In recent years, the amount of international capital flows increasedsignificantly. International capital flows enhanced the efficiency of worldresource allocation but also are great ’challenges to macroeconomicmanagement of the governments. Under the trends of globe economyintegration, academics and policy makers have to consider the benefitsand costs of capital flows and capital controls again. In reality, a lot ofcountries, especially developing countries still use capital controls todifferent levels. Here we firstly study the economic effects of capitalcontrol and its efficiency, then with reviewing the episodes of a fewemerging countries carried out capital controls, we try to find somethingvaluable to Chinese political practice. Last we summarize the Chineseexperience of capital controls, and offer some political choice about thecapital account liberalization.About the analysis of macroeconomic benefits and costs of capital controls, Capital control can reduce exchange rate volatility and bringfiscal income to the governments. But under the circumstance ofdomestic price fluctuation, capital control will enlarge exchange ratevolatility, and will hurt long-term economic development by reducingcapital accumulation. Capital control also changes the mechanism ofdemand policies and macroeconomic adjustment costs. The economicresults depend on the relative sensitivity of interest elasticity andexchange rate elasticity of aggregate demand.Full convertibility of RMB is the goal of the reform of foreignexchange management in China and now we have realized currentaccount convertibility. Strictly speaking, RMB is in the stage of "limitedcapital account convertibility", how far have we approached in the wayleading to capital account convertibility? In 2001, China became the fullmember of WTO. Because of the interreaction between the currentaccount and capital account, capital controls will influence the procedureof trade liberalization. Capital controls and capital account convertibilityare technically contrary to each other, but they can serve commonmacroeconomic goals such as stabilization and development programs.So the sequence of capital liberalization is an important topic of thisdissertation.