Australia's experience with the variable deposit requirement

This article examines the implementation of the Variable Deposit Requirement (VDR) capital control scheme in Australia in the 1970s. It notes that while capital controls can play a role in certain circumstances, they should not be used as a substitute for addressing underlying policy needs or financial sector reforms of an economy. The scheme was short-term in nature, and depended on subjective judgements about what level of capital inflow was appropriate at the time, and was unrelated to long-term policy objectives. The VDR was superseded by the adoption of a flexible exchange rate which allowed monetary policy to operate with greater coherence and independence from other objectives, such as industry policies.