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http://hdl.handle.net/10419/53484
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| Title: | | Central banks and capital flows  |
| Authors: | | Grenville, Stephen |
| Issue Date: | | 2008 |
| Series/Report no.: | | ADB Institute Discussion Papers 87 |
| Abstract: | | Sudden capital outflows were at the heart of the 1997-98 Asian crisis. Ten years later, capital flows are back on the policy agenda, but in a very different context. The countries of East Asia are now getting more inflows than they can effectively absorb and the upward pressure on exchange rates is unwelcome. These capital inflows reflect an ongoing structural disequilibrium: foreign capital will be attracted by the higher returns and the prospect of currency appreciation. In this environment, the exchange rate will be poorly anchored by fundamentals, which threatens the stability of the financial system. There is a range of possible policy responses. 'Sand in the wheels,' hedging, fiscal surpluses, current account surpluses, intervention using foreign exchange reserves, domestic taxes (both on foreign income and on capital gains), taxes on inflows (unremunerated reserve requirements), better bankruptcy arrangements, and stronger prudential measures may make some contribution, but each will be limited by institutional constraints and administrative capabilities. |
| JEL: | | F21 F31 F32 F36 G15 G28 |
| Document Type: | | Working Paper |
| Appears in Collections: | | ADB Institute Discussion Papers, Asian Development Bank Institute
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