The IMF’s Half Step

The IMF now recognizes that capital flows also bring risk, particularly in the form of inward surges and sudden stops, which can cause a great deal of financial instability. Unfortunately, the Fund’s new position on capital controls does not go far enough, in at least three ways.

BOSTON – “What used to be heresy is now endorsed as orthodox,” John Maynard Keynes remarked in 1944, after helping to convince world leaders that the newly established International Monetary Fund should allow the regulation of international financial flows to remain a core right of member states. By the 1970’s, however, the IMF and Western powers began to dismantle the theory and practice of regulating global capital flows. In the 1990’s, the Fund went so far as to try to change its Articles of Agreement to mandate deregulation of cross-border finance.