Capital Account Convertibility and the Financial Sector

As if it were still necessary, events unfolding in Asia for over a year reconfirm the critical importance of a sound, efficient financial sector for economic development and growth. Indeed, a growing number of studies underscore the risks that a vulnerable financial sector pose for macroeconomic sta...

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Bibliographic Details
Published in:Journal of applied economics 1998-11, Vol.1 (1), p.209-229
Main Author: Guitián, Manuel
Format: Article
Language:English
Subjects:
Balance of trade
Banking system
Capital flow
Exchange rates
Financial economics
International finance
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Summary:As if it were still necessary, events unfolding in Asia for over a year reconfirm the critical importance of a sound, efficient financial sector for economic development and growth. Indeed, a growing number of studies underscore the risks that a vulnerable financial sector pose for macroeconomic stability. In this context, it is often argued that the liberalization of capital account heightens financial sector vulnerability. But openness to capital flows can also underpin and deepen the development of the financial sector, thus contributing to its robustness. The paper examines these issues, drawing a parallel between capital account liberalization and domestic financial deregulation, indicating the role of the macroeconomic policy environment and reviewing their implications for the pace and sequence of the external liberalization process. The examination concludes with a brief discussion of the role and procedures the IMF envisages to take toward capital account liberalization.
ISSN:1514-0326
1667-6726
DOI:10.1080/15140326.1998.12040523