Capital Mobility and the External Accounts

Abstract

After the collapse of the Bretton Woods system of exchange rate management, a range of deregulatory actions affecting domestic and international financial transactions were implemented, including the abolition of capital controls and interest rate ceilings, as well as the entry of foreign financial institutions into domestic markets. These policy initiatives, combined with technological progress in telecommunications, and widespread financial innovation, greatly reduced transactions costs and broke down barriers separating economies’ financial markets.¹