This chapter looks at the transition from the acceptance at Bretton Woods of capital account management as a normal policy instrument to the liberalization of the capital account, first in developed countries and later in developing countries. It then analyses the risks of capital account liberalization, particularly the relation between capital account liberalization and the boom–bust cycles in global finance which have severely affected emerging and developing countries since the 1970s. It finally reviews the controversies around the effects of capital account liberalization and the evidence of success or failure with capital account management. Overall, there is significant evidence that capital account regulations improve the composition of capital flows towards less reversible flows and increase monetary independence without sacrifising exchange rate objectives. They also may have a desirable effect on the magnitude of flows and on exchange rates, but these effects are contested by some authors.
Capital Account Management: Toward a New Consensus?