Capital Control Reconsidered: Financialisation and Economic Policy

We consider capital controls and their impact on selected countries, providing a critique of IMF policy. We show how the warning signs of the 1970s were ignored and the consequences became apparent during the ensuing period of neoliberal hegemony. We contend that promoting increased capital mobility is counterproductive as it reduces macroeconomic ‘policy space’. We introduce a development of the international policy ‘trilemma’ in the form of a variant of the idea of the ‘quadrilemma’. We suggest that, in most cases, the key policy driving economic growth is fiscal policy but it may be that its unconstrained use (and that of monetary policy) is not possible either under fixed exchange rates or when free capital mobility exists; a nation may face a ‘demi-quadrilemma’. We contend that, in practice, a country can only adopt ‘two from four’; if it chooses to retain free use of monetary and fiscal policy, it must sacrifice both fixed exchange rates and capital mobility. We advocate the rejection of fixed exchange rates and free capital mobility allowing the retention of requisite monetary and fiscal policy space, and that a multinational approach to the capital control policy would effectively contribute to a growth and development strategy

Political Freedom, External Liberalization and Financial Stability

The chance of financial crises has grown in emerging economies in recent decades. Increasingly, the interest has shifted away from market-based reforms, such as more transparency, towards potentially stabilizing institutions. Among these institutions are better political freedoms, as they could help to foster stronger and more stable domestic demand growth. Using data from the IMF and Freedom House, we test the effectiveness of political freedoms, in particular of civil liberties and political rights, in reducing the chance of banking and currency crises. Our results show that more civil liberties, which are closely linked to worker rights, lower the chance of banking and currency crises, while political rights have no effect on the chance of financial crises. Also, this effect disappears in more open economies, likely due to increased capital mobility.Banking crisis, currency crisis, labor standards, emerging economies,

Safety First: Expanding the Global Financial Safety Net in Response to COVID-19

We call for strengthening the Global Financial Safety Net (GFSN) to manage the economic effects of COVID‐19, in particular the massive capital outflows from emerging market and developing economies EMDEs and the global shortage of dollar liquidity. Both the United Nations (UN) and the International Monetary Fund (IMF) estimate that EMDEs need an immediate $2.5 trillion, yet the financing available to them is just$700 to $971 billion. To meet these immediate needs we propose to: (1) broaden the coverage of the Federal Reserve currency swaps; (2) issue at least$500 billion of special drawing rights through the IMF; (3) improve the IMF’s precautionary and emergency facilities; (4) establish a multilateral swap facility at the IMF; (5) increase the resources and geographic coverage of regional financial arrangements; (6) coordinate capital flow management measures; (7) initiate debt restructuring and relief initiatives; and (8) request that credit‐rating agencies stop making downgrades during the emergency. It argues that leaders should swiftly move to address these structural gaps in the GFSN: (1) agree on a quota reform at the IMF; (2) create an appropriate sovereign debt restructuring regime; (3) expand surveillance activity; and (4) adopt IMF governance reform and strengthen its relations with all agents of the GFSN. All of these reforms must be calibrated toward a just transition to a more stable, inclusive, and sustainable global economy