Must-Read: Barry Eichengreen: Rethinking Capital Controls

Must-Read: Barry Eichengreen: Rethinking Capital Controls: “Worries persist that capital controls create a breeding ground for both corruption and distortions in resource allocation…

…The benefits of controls are concentrated, giving the favored groups (exporters, in the case of China) a strong incentive to lobby for their retention, while the costs are diffuse…. Controls may also provide an excuse not to undertake painful but necessary reforms…. What can be done to limit those risks? One possibility is to develop standards…. One possible way to ensure that governments adhere to these standards would be to make compliance an obligation for members of the International Monetary Fund and to authorize the fund to name and shame countries that fail to comply. More ambitiously, countries that fail to comply could be denied access to the fund’s financing facilities…. The International Monetary Fund has displayed greater open-mindedness about capital controls…. And given this new open-mindedness, there may be a way to create the long-elusive consensus. Stay tuned.