Capital Controls: A Pragmatic Proposal

25 Pages Posted: 21 Mar 2013

See all articles by Maria Socorro Gochoco‐Bautista

Maria Socorro Gochoco‐Bautista

University of the Philippines, School of Economics

Changyong Rhee

Asian Development Bank

Date Written: February 2013


The strong and volatile rebound of capital inflows, mostly portfolio investments, into emerging economies in the recovery process of the 2008 global financial crisis has brought the issue of capital controls to the forefront once again. The presence of global imbalances and unconventional monetary easing in advanced countries has added new complexity to the controversy surrounding their use, as ‘currency wars’ became a hot button political issue. While the International Monetary Fund’s (IMF) recent openness to the use of capital controls has drawn positive reactions from emerging economies, its framework is still perceived as complicated, intentionally vague, and difficult to implement. To complement the IMF’s new framework and make it easier to operationalize, this paper proposes a pragmatic approach to the use of capital controls which leverages the G20 indicative guidelines in measuring excessive imbalances in order to simplify the IMF’s guidelines on the use of capital controls. Our proposal, which argues for the absence of persistent current account imbalances as a precondition to the use of capital controls, is anchored on the principle that a country’s sovereign right to use all available tools and implement policies that they deem best should be respected as long as there are no substantial negative externalities on other countries.

Keywords: capital controls, financial stability, global imbalances, G20, indicative guidelines

JEL Classification: E5, F2, F3, F4, F5, F6, G1

Suggested Citation

Gochoco-Bautista, Maria Socorro and Rhee, Changyong, Capital Controls: A Pragmatic Proposal (February 2013). Asian Development Bank Economics Working Paper Series No. 337. Available at SSRN: or

Maria Socorro Gochoco-Bautista (Contact Author)

University of the Philippines, School of Economics ( email )

Quezon City, Diliman

Changyong Rhee

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila

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