The Prudential Use of Capital Controls and Foreign Currency Reserves

7 December 2022
Publication Type: Workshop Presentation

Capital flow management (CFM) has become part of accepted toolbox and there is a growing literature on the second-best use of capital controls, such as pecuniary and aggregate demand externalities. With a focus on “prudential use” and similar developments for foreign currency reserves, this research paper revisits CFM literature using a unified framework. It delves into the following themes:

  1. Monetary policy dilemmas
  2. Capital controls ex ante and ex post
  3. FX reserves: exchange rate management or precautionary? • A reconciliation
  4. Controls on outflows as crisis management

And it reviews the stylized facts, and the chronology and effectiveness of policies.

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