Open and Orderly Capital Movements Interventions from the 2016 OECD High-Level Seminar Open and Orderly Capital Movements Interventions from the 2016 OECD High-Level Seminar This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city, or area. Please cite this publication as: OECD (2017), Open and Orderly Capital Movements: Interventions from the 2016 OECD High-Level Seminar © OECD 2017 ABSTRACT Foreword This collection compiles the contributions of senior policy experts, academics, and economic practitioners on developments in the financial integration and financial regulation of cross-border capital flows since the 2008 global financial crisis, at the OECD High-Level Seminar “Open and Orderly Capital Movements” held in October 2016. The long-term move towards capital account openness among large emerging markets, the role of macroprudential measures in minimising systemic risk associated with large capital flow volatility, the avenues of reconciling individual country regulatory objectives and the collective interest of open and deep capital markets are discussed. The contributions also consider how the OECD Code of Liberalisation of Capital Movements may be further developed into an inclusive multilateral framework to support a resilient and open global financial system and ultimately robust investment and growth. An open, transparent and orderly international system of capital flows underpins growth and stability. In an increasingly interconnected world economy, faced with episodes of heightened capital flow volatility, significant value is attached to a credible commitment mechanism that is sensitive both to the need to keep investment flowing but also to ensure financial stability concerns are addressed. A rule-based, co-operative framework for capital flow policies can help countries maintain market confidence and continue to attract the capital needed to support inclusive growth and sustainable development. The OECD Code of Liberalisation of Capital Movements provides such a framework. As an instrument that encourages co-operation, it has provided a tried and tested process for global dialogue for over 50 years. Currently adhered to by all thirty-five OECD countries (including twelve G20 countries), and open to adherence by non-OECD countries, the OECD Code is the sole multilateral agreement among State parties dedicated to openness and transparency in cross-border capital flow policies. While there is no presumption that full liberalisation is an appropriate goal for all countries at all times, the OECD Code is based on the premise that long-term business investment and growth potential cannot be achieved with closed capital accounts and that “beggar-thy-neighbour” approaches to capital flow policies can result in negative collective outcomes. OPEN AND ORDERLY CAPITAL MOVEMENTS © OECD 2017 3 Acknowledgements The 2016 High-level Seminar on “Open and Orderly Capital Movements” was organised by the International Finance and Codes Unit within the OECD Directorate for Financial and Enterprise Affairs, including Annamaria de Crescenzio, Kiril Kossev, Etienne Lepers, Andrea Marin Odio, and Marta Golin, with the support of Florence Longueve and Elodie Pierre. The event was organised under the direction of Pierre Poret, Ana Novik, and André Laboul. The 2017 German G20 Presidency and the Federal Ministry of Finance co-sponsored the event and support the OECD in its work towards open and orderly capital movements. Ludger Schuknecht, Holger Schröder and Markus Neimke provided organisational support. This compilation of interventions was prepared by Kiril Kossev, Annamaria de Crescenzio, Etienne Lepers and Florence Longueve, under the guidance of Winfrid Blaschke. Michael Williams, Chair of the Advisory Task Force on the OECD Codes of Liberalisation, and Guillaume Chabert and Seoungho Jin, co- chairs of the G20 International Financial Architecture Working Group, provide support for this work. 4 OPEN AND ORDERLY CAPITAL MOVEMENTS © OECD 2017 TABLE OF CONTENTS Table of Contents Preface by Angel Gurría, OECD Secretary-General ............................................. 7 Introduction by Gabriela Ramos, OECD Chief of Staff and G20 Sherpa............ 9 Intervention by Catherine L. Mann, OECD Chief Economist ............................ 12 Chapter 1. Financial openness at a crossroads: The post-crisis world .............. 15 1.1. Intervention by Michel Houdebine, Chief Economist, Treasury, France ..... 15 1.2. Intervention by Rodrigo Vergara, Governor, Central Bank of Chile.................................................................................... 18 1.3. Intervention by Ignazio Visco, Governor, Central Bank of Italy ..................................................................................... 20 1.4. Intervention by Yannis Stournaras, Governor, Central Bank of Greece ....... 23 1.5. Intervention by Luis Caputo, Secretary of Finance, Argentina .................................................................... 27 1.6. Intervention by Sir Jon Cunliffe, Deputy Governor, Bank of England ............................................................................................ 29 1.7. Intervention by Ludger Schuknecht, G20 Finance Deputy and Chief Economist, Federal Ministry of Finance, Germany ...................... 32 Chapter 2. Taking a long view on capital movements liberalisation ................. 38 2.1. Intervention by Xiangmin Liu, Deputy General Counsel, The People's Bank of China .......................................................................... 38 2.2. Intervention by Paul Castillo, Deputy Head for Monetary Policy Design, Central Reserve Bank of Peru......................... 39 2.3. Intervention by Ksenia Yudaeva, First Deputy Governor of the Bank of Russia ............................................... 41 2.4. Intervention by Frank Moss, Director General International and European Relations, European Central Bank ......................................... 42 2.5. Intervention by Olivier Jeanne, Professor of Economics, Johns Hopkins University, Peterson Institute for International Economics, NBER, CEPR ................................................. 45 OPEN AND ORDERLY CAPITAL MOVEMENTS © OECD 2017 5 TABLE OF CONTENTS Chapter 3. Capital flow management measures with a deemed macroprudential intent: Reconciling individual country objectives and the collective interest ................................................. 49 3.1. Intervention by Philip R. Lane, Governor, Central Bank of Ireland ................................................................................. 49 3.2. Intervention by Kunil Hwang, Director General of the International Finance Policy Bureau, Ministry of Strategy and Finance, Korea .............................. 50 3.3. Intervention by Mario Nava, Director of Financial System Surveillance and Crisis Management, DG FISMA, European Commission ........................... 53 3.4. Intervention by Stijn Claessens, Senior Adviser, Board of Governors, Federal Reserve System .............................................. 57 3.5. Intervention by Dong He, Deputy Director, Monetary and Capital Markets Department, IMF ......................................................... 64 3.6. Intervention by Kevin Noel Cowan, Director for Chile and Ecuador, Inter-American Investment Corporation, Alternate Executive Director for Chile and Peru, Inter-American Development Bank ............................... 67 Chapter 4. The review of the OECD Code - Towards a global liberalisation framework for capital flows ............................................................... 74 4.1. Intervention by Ana Novik, Head of Investment Division, OECD Directorate for Financial and Enterprise Affairs ............................... 74 4.2. Intervention by Otávio Ribeiro Damaso, Deputy Governor, Central Bank of Brazil .................................................... 80 4.3. Intervention by Ana Fernanda Malguashca, Co-Director, Bank of Colombia ......................................................................................... 83 4.4. Intervention by Vivek Arora, Deputy Director, Strategy, Policy and Review Department, IMF ........................................................................................... 85 4.5. Intervention by Andrew Baukol, Principal Deputy Assistant Secretary for International Monetary Policy, US Department of the Treasury .................. 89 Concluding remarks by Pierre Poret, Director of the OECD Directorate for Financial and Enterprise Affairs ................................................................................................ 92 6 OPEN AND ORDERLY CAPITAL MOVEMENTS © OECD 2017 PREFACE Preface by Angel Gurría, OECD Secretary-General Globalisation has undoubtedly brought significant benefits to our economies and societies. From widely diffused productivity gains and a greater variety of goods at competitive prices for consumers, to lifting hundreds of millions of people out of poverty. These benefits have been underpinned both by trade and financial globalisation supporting one another. The latest OECD Business and Finance Outlook