It is often argued that deregulation of international transactions and its effects on the globalization of financial markets is behind the decline in the attractiveness of fixed exchange rate regimes. We argue that, instead, much of the recently observed decrease in the level of capital controls...

This paper describes the relationship between central bank interest rates and exchange rates under a capital control regime. Higher interest rates may strengthen the currency by inducing owners of local currency assets not to sell local currency off shore. There is also an effect that goes in...

We study the renminbi (RMB) covered interest differential - an indicator of the effectiveness of capital controls. It is found that the differential is not shrinking over time and, in fact, appears larger after the global financial crisis than before. That is, capital controls in China are still...

A traditional way of thinking about the exchange rate regime and capital account openness has been framed in terms of the 'impossible trinity' or 'trilemma', according to which policymakers can only have two of three possible outcomes: open capital markets, monetary independence and pegged...