Global policymakers must allow some emerging countries to set capital controls to mitigate the impact from financial crises such as those recently triggered by advanced economies, Bank of Japan Governor Haruhiko Kuroda said on Wednesday.
Contrary to past currency crises involving emerging economies, the epicenter of the recent turbulence was in the United States and euro zone which then transmitted to many emerging countries, Kuroda told an annual forum of central bankers and academics hosted by the BOJ.
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"One of the causes of such international transmission of the crisis is deemed to be financial globalization and the accompanying global upsurge of gross capital flows, which has led to increased attention over prudential capital controls," said Kuroda, a former head of the Asian Development Bank.
Global policymakers must therefore work to build a new financial system that comes to terms with capital controls, financial regulation and supervision, he told the forum that is debating the lessons from the global financial crisis.
The International Monetary Fund has long emphasized the benefits of a free-flowing capital market and frowned upon countries setting capital controls.
However, with the crisis stemming from the Lehman Brothers collapse and the euro-zone debt woes, the IMF has acknowledged the need for some emerging nations to set capital controls to mitigate the negative impact on their economies.
"The global economy has not yet completely shook off the effects of the global financial crisis, even after five years since the onset of the crisis," Kuroda said.