This chapter considers the law of reflux and its alternative interpretations: (1) as a monetary policy rule for stabilizing the price level and (2) as rule for individual banks to follow to remain liquid. The chapter argues that Adam Smith endorsed only the second interpretation, and that the...

• Advanced developing countries are increasingly encouraged to remove existing capital controls, but mixed experiences with capital account opening caution that reform must be carefully designed to increase efficiency and growth without compromising stability • A gradual dismantling of...