Investment policy

Capital controls and the OECD Codes of Liberalisation


12/03/2010 - Renewed interest in capital controls. Recently, a few countries have introduced or tightened capital controls. Some others have debated – but so far refrained from imposing – new controls. Two countries relaxed restrictions on capital outflows.


Controls can have a role in difficult situations but also entail risks. The OECD’s long-standing view is that temporary capital controls can play a role as last-resort measures when adjustments to macroeconomic and exchange rate policies and prudential safeguards are insufficient to deal with serious balance-of-payments difficulties or financial disturbance. But controls should be designed and implemented in a way that minimises distortions on long-term investments and ordinary business activities. Adoption of controls could lead other affected countries to adopt them as well. The OECD warns against widespread adoption of controls as they could aggravate global imbalances and compromise economic recovery.


International co-operation is essential. The OECD agrees with the IMF that an inter-governmental framework governing the re-imposition of controls is helpful in managing possible cross-country spillovers. The OECD Code of Liberalisation of Capital Movements has provided members with such a framework since 1961.


OECD rules do not prohibit capital controls but neither do they encourage them. Under the OECD Code, members undertake binding liberalisation, non-discrimination and transparency commitments. The Code allows for derogations to liberalisation obligations if the economic and financial situation justifies such a course of action. But it imposes time limits on such derogations and asks members to avoid unnecessary damage to others. The Code does not apply its standstill obligation to liberalisation of short-term capital flows. Notifications and examinations of the countries introducing capital controls by their peers ensure that measures are implemented in a transparent and fair manner and are not maintained longer than necessary.


Current state of play in OECD countries. Today, no OECD countries maintain capital controls, with the exception of Iceland which introduced controls in November 2008 during the financial crisis. Iceland is now phasing these controls out. None of the five countries currently in process of accession to OECD maintain capital controls.


OECD hosts a co-operation forum open to all major emerging economies. Adherence to the OECD Codes of Liberalisation is open to non-OECD countries. Furthermore, the Freedom of Investment Roundtables in which OECD, non-OECD G20 and other countries participate as equal partners provide a forum in which recourse to capital controls and their effects can collectively be monitored and lessons learnt from national experiences can be shared among governments. Future Roundtables will consider the development of investment policy principles for crisis measures relevant to capital controls, drawing on the OECD Codes and other sources of international law.


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