IMF高级宏观经济学研修班CTMMFLManagingI

1、L-8 Part II. Managing Capital Flows in ChinaPresenterRay BrooksJoint China-IMF Training ProgramCourse on Macroeconomic Management and Financial Sector IssuesCT 14.01This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Institute courses. Any r

2、euse requires the permission of the IMF Institute.OutlineWhat was the experience with capital flows?How were capital flows managed in the past?Were capital controls effective?What will happen to with capital flows with liberalization? Experience of liberalization in other countriesBenefits and risks

3、 of opening the capital account in ChinaSteps toward successful liberalization in ChinaChinas Experience: Forex inflows were sizable, but mainly from the current account surplus.the capital and financial account was also in surplus and volatile.FDI flows were largeFDI and other Capital Flows were la

4、rge in a global context tooGross Capital Flows were also largeHow were capital flows managed in the past?A combination of policies managed the flows:Exchange rate policy (gradual appreciation)Sterilization of forex inflowsReserve requirements on banksCapital controls Improved prudential and supervis

5、ory policiesNominal and Real Effective Exchange Rates appreciated since 2005 reformSterilization: Official Reserves increased considerablyWith considerable variation in the extent of forex interventionThe reserve requirement on banks was increased to manage the liquidity impact of forex inflowsCapit

6、al Account controls were eased in past decade but remain restrictiveChina remains relatively closedWere capital controls effective? Flows do not appear sensitive to interest rate differentialFranziska Ohnsorge and Steven Barnett, IMF March, 2013But sensitive to US interest rateFranziska Ohnsorge and

7、 Steven Barnett, IMF 2013What will happen to capital flowswith liberalization?What happened in other countries? 20+ episodes of capital account liberalization (Kaminsky and Schmukler, 2003) in AM and EM since 1979. The increase in net capital inflows from the year before to the year after liberaliza

8、tion depended on:State of domestic versus world business cycleTime since financial sector liberalizationGross international assets and liabilities increased on average by 19-20 percentage points of GDP over the following five years. Portfolio inflows increased and.Bayoumi and Ohnsorge, IMF WP 2013 a

9、s did other investment flows. Bayoumi and Ohnsorge, IMF WP 2013Capital account liberalization was almost always followed by increases in gross foreign assetsBayoumi and Ohnsorge, IMF WP 2013.and often also increases in gross foreign liabilities.Bayoumi and Ohnsorge, IMF WP 2013Recent IMF study predi

10、cts rise in Chinese assets with liberalization of capital accountBayoumi and Ohnsorge, IMF WP 2013Experience of other countries: liberalization often followed by exchange rate or banking crisisBayoumi and Ohnsorge, IMF WP 2013Some country casesKorea: liberated capital controls before exchange libera

11、lization: led to currency mismatches on balance sheets and 1997 crisisIsrael: Unsuccessful “big bang” liberalization in 1977, large inflows that reversed. Controls reintroduced 1 years later. Subsequent reform better managed. Sweden: capital account liberalization in 1989 and financial liberalizatio

12、n led to credit boom. Could not defend fixed exchange rate. Turkey: capital account liberalization with fiscal dominance: destabilizing capital flows and two crises (1994 and 2001). Emerging markets with more flexible exchange rates have generally fared better in face of external pressures (Chile, P

13、eru, South Africa)Benefits of opening the capital account in ChinaBetter allocation of capital and risk diversificationWider use of RMB as international currencyWould help rebalance growth away from reliance on exports and investment, with supporting financial and exchange rate reformsWould facilita

14、tes financial sector reform and development by:Improving liquidity in domestic equity marketsIntroducting competitionBanking sector, with foreign bank entry bringing benefits to savers and borrowersInsurance sector currently protected, would face greater competitionCapital controls less effective ov

15、er time in face of expanded trade and more sophisticated investorsRisks of opening the capital account in ChinaGross capital flows could be large after liberalizationPotential problems:Asset bubblesCapital flightCurrency and maturity mismatches in bank and corporate balance sheetsProblems could lead

16、 to crisis as seen in other countriesUnderlines need for cautious and integrated approach to liberalization, with accompanying reforms Steps toward successful Capital Account Liberalization (IMF A4 2012)Aim to harness benefits of open capital flows while mitigating the risks.Sequencing importantbut

17、plans should be flexible and tuned to changing circumstancesSome prerequisites: Exchange rate reformgreater flexibility would reduce capital flows and allow for independent monetary policy New monetary frameworkobjectives of growth, inflation and financial stabilityRegulation and supervisionimprove

18、supervision, regulation, and risk monitoringSteps toward Capital Account Liberalization cont. Interest rate liberalizationmove to market-determined loan and deposit rates should not involve loosening of monetary policyFull liberalization, esp. short-term capital flows, wait until bulk of above reforms in placeUse qualified foreign and domestic inst