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By Sebastian Mallaby
Published: October 11 2010 13:01 | Last updated: October 11 2010 13:01
A decade ago, crises in east Asia, Russia and Latin America hurt the case for cross-border capital flows. The US Treasury and the International Monetary Fund were derided for championing capital account liberalisation, and free traders explained why the case for mobility of goods and people should not be extended to mobility of capital. But the world ignored the intellectuals. Far from reining in cross-border capital flows, policymakers let them accelerate. In the wake of the 2007-09 crisis, the question is whether financial globalisation will be tamed this time.
It certainly looks as though it might be. The finance ministers at the IMF's weekend gathering were in no mood to celebrate capital flows, and the Fund's own economists have softened their former opposition to border restrictions. Emerging economies that have resisted opening up their capital markets "“ notably China and, to a lesser extent, India "“ are smugly pleased about their caution; those that liberalised more hastily "“ including Brazil, Taiwan, Indonesia, South Korea and Russia "“ have reimposed various restrictions. In the sclerotic ageing democracies "“ the Sads, one might call them "“ there is talk of erecting barriers to Chinese capital inflows.
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