Abstract:
This paper rethinks the imperfectness of the theories and policies on promoting capital account opening by examining the financial performance of China’s cross-border capital flows. We argue that no empirical evidence would support capital flows’ welfare effects, and making policies based on this theory might get developing countries into trouble. The policy called managed convertibility which arises from practices in China can be widely applied to developing countries. Developing countries should strive for a greater say in setting international rules of opening capital account, and improve the influence of capital flow management measures. To realize capital account convertibility is China’s target, but convertibility reform needs a process of dynamic optimization.
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