Global Financial Strategy - IMF touts global cross-border capital rules

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IMF touts global cross-border capital rules

Thursday 6 January 2011 – by Andrew Hickley

The International Monetary Fund is looking to break from previous policy and issue global guidelines on the restrictions used to control cross-border capital flows.

In the conclusions of a December 17 board meeting made public yesterday, the IMF admits that there are currently “no rules of the game” regarding international capital flows, despite it playing a key role in increasing vulnerabilities and cross-border shocks during the financial crisis.

Emerging markets have complained that floods of capital have been used to boost the value of their currencies and have thus decreased their competitiveness, with a number of solutions, including separate currency depreciation and the imposition of taxes on short-term capital flows, being introduced to counter this.

But in spite of the IMF’s mandate to oversee the stability of the international monetary system, a working paper discussed noted that the Fund has been “hamstrung” in previous attempts to forge rules on these inflows.

While the IMF Executive Board has not discussed capital account liberalisation and controls since 1997, directors concluded that a coherent Fund view and informed policy guidance must be created on the back of “substantial” analytical research.

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“Critical elements of this work include gaining a better understanding of the key drivers of capital flows and of developments in global liquidity, and the relationship between the latter, domestic policies, and global financial stability,” read an IMF statement.

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