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Capital Mobility, Exchange Rates and Economic Crises
Recent crises in emerging markets have raised doubts about the desirability of relaxing controls on capital mobility. George Fane, however, uses evidence from the crises in Asia and Latin America to reassert the traditional case that such controls are an excessively blunt instrument for achieving financial stability.
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Critical Acclaim
Contents
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Recent crises in emerging markets have raised doubts about the desirability of relaxing controls on capital mobility. George Fane, however, uses evidence from the crises in Asia and Latin America to reassert the traditional case that such controls are an excessively blunt instrument for achieving financial stability.
This book argues that recent official proposals for reforming the ‘international financial architecture’ are also unlikely to reduce the frequency of currency and financial crises to an acceptable level. The author proposes an alternative plan to achieve greater financial stability:
• banks should have to double the currently accepted percentage of capital to risk-weighted assets from 8 to 16 percent and the risk-weights for loans to emerging markets should also be raised substantially
• the financial sectors in emerging markets should be fully opened to foreign competition
• bankruptcy procedures in emerging markets should be greatly strengthened
• central banks should adopt flexible exchange rates, backed by credible targets for inflation or monetary growth. If flexible exchange rates are not adopted, central banks should at least avoid the widespread practice of trying to sterilise the monetary effects of capital flows
The author argues that the implementation of this plan will be a far more effective way of enhancing financial stability than controlling international capital flows, or trying to force private lenders to make new loans to countries that suffer crises.
This book will be required reading for scholars and policymakers in the areas of international financial economics, financial regulation, development economics and Asian studies.
This book argues that recent official proposals for reforming the ‘international financial architecture’ are also unlikely to reduce the frequency of currency and financial crises to an acceptable level. The author proposes an alternative plan to achieve greater financial stability:
• banks should have to double the currently accepted percentage of capital to risk-weighted assets from 8 to 16 percent and the risk-weights for loans to emerging markets should also be raised substantially
• the financial sectors in emerging markets should be fully opened to foreign competition
• bankruptcy procedures in emerging markets should be greatly strengthened
• central banks should adopt flexible exchange rates, backed by credible targets for inflation or monetary growth. If flexible exchange rates are not adopted, central banks should at least avoid the widespread practice of trying to sterilise the monetary effects of capital flows
The author argues that the implementation of this plan will be a far more effective way of enhancing financial stability than controlling international capital flows, or trying to force private lenders to make new loans to countries that suffer crises.
This book will be required reading for scholars and policymakers in the areas of international financial economics, financial regulation, development economics and Asian studies.
Critical Acclaim
‘This book is a significant and useful addition to the existing literature on the subject. . . it is a well documented study of the capital mobility and economic crises. It deals with highly topical subjects and recent events in a clear, accessible way. It gives an interesting and valuable insight into the very important issue in the international financial system. I strongly recommend the book for all those interested in the international financial market.’
– Zhaoyong Zhang, Economic Record
‘This excellent book deals not only with capital market liberalization, capital controls, and recent crises, but also with the implications of international capital mobility for monetary and exchange rate policies, and for reform of the “international architecture”. On the basis of Fane’s specialist knowledge it is particularly informative on capital market and exchange rate policies in East Asian developing economies. Fane analyzes highly topical subjects and recent events in a very clear, accessible way. The book can be strongly recommended both as a university text and as a reference for all interested in international financial markets.’
– W. Max Corden, Johns Hopkins University, US
– Zhaoyong Zhang, Economic Record
‘This excellent book deals not only with capital market liberalization, capital controls, and recent crises, but also with the implications of international capital mobility for monetary and exchange rate policies, and for reform of the “international architecture”. On the basis of Fane’s specialist knowledge it is particularly informative on capital market and exchange rate policies in East Asian developing economies. Fane analyzes highly topical subjects and recent events in a very clear, accessible way. The book can be strongly recommended both as a university text and as a reference for all interested in international financial markets.’
– W. Max Corden, Johns Hopkins University, US
Contents
Contents: Preface 1. Introduction 2. Capital Controls and Exchange Controls 3. Capital Controls and Crisis Prevention: Four Case Studies 4. First and Second- Best Arguments for Capital Controls 5. Speculative Crises, Default and Contagion 6. Banks, Moral Hazard and Prudential Regulations 7. Monetary and Exchange Rate Policies 8. The Credibility of Monetary and Exchange Rate Policies 9. Reforming the International Financial Architecture References Index
