The Temptation of China s Capital Account

Banks capital adequacy ratios were set globally, and, once set, remained fixed.

Similarly, banks would have incentives to game capital adequacy requirements by manipulating how capital and assets are defined.

Accordingly, a kind of policy coherence has evolved in the international trade and financial system around controlling the actions of sovereign States by prescribing a narrow and uniform range of acceptable policy instruments.

It is time to add managing the capital account to this list.

This has come at the expense of sectors that are more dependent on equity financing.

There seems to be little appetite for proposals to vary capital adequacy requirements counter cyclically.

Given the evidence that capital account liberalization increases macroeconomic volatility, many developing countries have experimented with capital controls.

China has a two tier system in which the capital account is strictly controlled most other currencies don t distinguish between current and capital accounts.

As such, the timing could not be worse to float the idea of speeding up capital account liberalization.

To be sure, a cautious approach should not be allowed to impede incremental progress toward capital account liberalization.

Progress in institution building is also important for a well sequenced liberalisation of the capital account.

Initial capital

Economic and political capital appeared to be focusing on the economies in transition to the detriment of the developing countries.

Since high risk premiums on government bonds endanger the capital adequacy of banks, half a solution is not enough.

European banks, traditionally a major source of trade finance, have pulled back dramatically, owing to capital adequacy problems caused by sovereign debt capital losses and, in some cases, losses from real estate lending.

The Art of Capital Flight

Damming Capital

The Capital Flow Conundrum

Capital flows and remittances

E. Financial capital and resilience

National Capital

Capital purchase items.

liabilities plus equity.

Who is HlG Capital?

The height kind of represents the quantity.

Er... Thee capitalization will be shared equally.

The Asian financial crisis persuaded China s leaders to shelve plans, launched in 1994, to liberalize the capital account.

It is hard to argue that the RMB is not undervalued, given China s large and persistent current account and capital account surpluses.

As above, firm value is enhanced when, and if, the return on capital exceeds the cost of capital.

There seems to be little appetite for proposals to vary capital adequacy requirements counter cyclically. This would enable capital buffers to be created in good years, which could then be drawn down in bad years.

For instance, we know that the global capital adequacy requirements produced by the Basel Committee reflect overwhelmingly the influence of large banks.

The portion of capital inflows that is not re exported represents net capital inflows.

So what is going to happen is the guy with the capital is just going to end up with more capital.

The Siren Song of Capital Controls

Investment and private flows

(o) Working Capital Fund

I. ROLE OF FOREIGN CAPITAL

II. ROLE OF FOREIGN CAPITAL . 2 4 2

Net movement of capital e

(b) Working capital funds

So we're going to have to raise some money.

What I need is more stock.

Most economists in China seem to support the PBOC s stance, citing the potential benefits of capital account liberalization.

Brazil has been aggressive in terms of capital restrictions, twice increasing its tax on financial inflows.