Management of capital flows should be a concern for both source as well as recipient countries. This was the view of majority of the participants in a Reserve Bank of India seminar on managing capital flows.

Capital flows are driven by both pull (economic fundamentals of recipients) and push (policies of source countries) factors.

Monetary and prudential regulation policies in source countries may exacerbate the level and risk of capital flows in recipient countries. Thus, adjustment in the wake of volatile capital flows should not be the exclusive responsibility of receiving country.

Both recipient and source economies need to act in coordination and the burden of adjustment should be shared between them, said the participants who included central bankers, international institutions, academics and analysts from Asia, Europe, Latin America and the US.

To maximise global welfare there is merit in acting in concert and in a coordinated manner in the event of excess capital flow volatility, said the RBI in a statement summarising the proceedings of the two-day seminar which was jointly organised with the Asian Development Bank.

RBI Deputy Governor Subir Gokarn underscored the importance of multilateral coordination, complementarity between capital controls and macroeconomic policy options.

Participants emphasised that it is important that capital controls should not be perceived as a substitute to prudent macroeconomic policies and well regulated financial system. A sound and well-developed financial system makes absorption and intermediation of foreign flows smoother for emerging economies.

(This article was published on November 20, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.