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This paper compares the importance of precautionary and mercantilist motives in the hoarding of international reserves by developing countries. Overall, empirical results support precautionary motives; in particular, a more liberal capital account regime increases international reserves. Theoretically, large precautionary demand for international reserves arises as a self-insurance to avoid costly liquidation of long-term projects when the economy is susceptible to sudden stops. The welfare gain from the optimal management of international reserves is of a first-order magnitude, reducing the welfare cost of liquidity shocks from a first-order to a second-order magnitude.

Developing countries -- Economic policy. --- Electronic books. -- local. --- Fiscal policy -- Developing countries -- Econometric models. --- Banks and Banking --- Exports and Imports --- Finance: General --- Monetary Policy --- Portfolio Choice --- Investment Decisions --- Trade: General --- Current Account Adjustment --- Short-term Capital Movements --- Banking --- Finance --- International economics --- International reserves --- Liquidity --- Reserves accumulation --- Export performance --- Capital account liberalization --- Foreign exchange reserves --- Economics --- Exports --- Balance of payments --- China, People's Republic of

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This paper reviews the issues involved in moving towards greater exchange rate flexibility and capital account liberalization in China. A more flexible exchange rate regime would allow China to operate a more independent monetary policy, providing a useful buffer against domestic and external shocks. At the same time, weaknesses in China’s financial system suggest that capital account liberalization poses significant risks and should be a lower priority in the short term. This paper concludes that greater exchange rate flexibility is in China’s own interest and that, along with a more stable and robust financial system, it should be regarded as a prerequisite for undertaking a substantial liberalization of the capital account.

Exports and Imports --- Foreign Exchange --- Current Account Adjustment --- Short-term Capital Movements --- International Investment --- Long-term Capital Movements --- Currency --- Foreign exchange --- International economics --- Exchange rate flexibility --- Capital controls --- Capital account liberalization --- Capital account --- Exchange rate arrangements --- Balance of payments --- Capital movements --- China, People's Republic of

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Drawing on evidence from a sample of emerging market economies over the period 1990-2004, this evaluation report reviews the IMF’s approach to capital account liberalization and related issues. The evaluation seeks to contribute to transparency by documenting what in practice has been the IMF's approach to these issues and to identify areas where the IMF’s instruments and operating methods might be improved, in order to deal with these issues more effectively.

Capital movements. --- International Monetary Fund --- Evaluation. --- Capital flight --- Capital flows --- Capital inflow --- Capital outflow --- Flight of capital --- Flow of capital --- Movements of capital --- Balance of payments --- Foreign exchange --- International finance --- Internationaal monetair fonds --- International monetary fund --- Exports and Imports --- Foreign Exchange --- Macroeconomics --- Current Account Adjustment --- Short-term Capital Movements --- International Investment --- Long-term Capital Movements --- Labor Economics: General --- International economics --- Currency --- Labour --- income economics --- Capital account liberalization --- Capital account --- Capital controls --- Capital inflows --- Capital movements --- Labor economics --- Czech Republic

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The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy. www.imf.org/external/pubs/ft/survey/so/home.aspx.

Banks and Banking --- Exports and Imports --- Finance: General --- Public Finance --- Emigration and Immigration --- Current Account Adjustment --- Short-term Capital Movements --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Monetary Policy --- International Migration --- International economics --- Public finance & taxation --- Finance --- Banking --- Financial services law & regulation --- Migration, immigration & emigration --- Capital account liberalization --- Capital account --- Public investment and public-private partnerships (PPP) --- Public investment spending --- International reserves --- Balance of payments --- Expenditure --- Migration --- Population and demographics --- Public-private sector cooperation --- Public investments --- Foreign exchange reserves --- Emigration and immigration --- New Zealand