China faces pressure to impose capital controls to stave off large-scale depreciation of its currency, but the mainland should seek out other options, the former head of the International Monetary Fund's (IMF) China division said.
Concerns over the mainland's economic slowdown, compounded by fears that the yuan would depreciate further after policymakers intervened recently, spurred massive capital outflows last year. That in turn spurred concerns that China might turn to capital controls to stem the capital flight.
"Capital controls seem very seductive in (theory) but I don't think they'll work very well in practice," Eswar Prasad, who is now senior professor of trade policy at Cornell University, told CNBC's "Street Signs."
"My fear is that the small nip and cut measures in terms of capital controls are not necessarily going to inspire confidence. In fact, they could end up stoking even more outflows if there is a concern that there are even more substantial capital controls coming," he said.