Why capital controls?
The report states that many countries implement capital controls to help reconcile conflicting policy objectives when their exchange rate is fixed or heavily managed. The most common argument for the implementation of capital controls is to preserve the autonomy of monetary policy or of domestic objectives regarding direct monetary policy, as well as to reduce pressures on the exchange rate. A related argument is to protect monetary and financial stability during persistent capital flows. This is particularly important when there are concerns about the inflationary consequences of large capital inflows or when banks or the corporate sector inadequately assess their risk. Inadequate assessment of risk typically occurs in the context of a heavily managed exchange rate that, by providing an implicit exchange rate guarantee, encourages a build-up of unhedged foreign currency positions. The report also states that capital controls have been used to support policies of financial repression t
