Nigeria Content Online

The International
Monetary Fund (IMF) is considering playing more important role in
monitoring cross-border capital flow. The Fund’s executive board at a
meeting held last December 17, noted the growing dominance of capital
flows in international transactions for advanced economies, and
increasingly for emerging economies and the need for closer monitoring.

“Volatile capital
flows played a key role in the recent crisis, both in increasing
vulnerabilities and in transmitting shocks across borders. Considering
the Fund’s mandate to oversee international monetary stability,
directors agreed with the need to strengthen the Fund’s role regarding
international capital flows,” it said on its website.

The Bretton Woods
institution said further that macroeconomic, financial, and capital
account policies designed to address domestic concerns in one country
can have significant effects on other countries by generating or
curtailing capital flows, or acting to divert them to third countries.

“The Fund has an
important role in drawing attention to these potential spillovers, and
the possible implications for the international monetary system as a
whole.” Critical elements of this work include gaining a better
understanding of the key drivers of capital flows and of developments
in global liquidity, and the relationship between the latter, domestic
policies, and global financial stability.

Unhindered capital flows

The move by the IMF
raises questions about how unhindered capital flows and the absence of
proper regulation caused disruption in some emerging economies that
otherwise should have been shielded from the global financial crisis in
2008.

Razia Khan,
Regional Head of Research, Africa, at Standard Chartered Bank, London,
said the global crisis was a failure of regulation.

“Need for improved
financial-sector regulation is seen everywhere. Policy makers have
generally backed off, fearing pro-cyclical consequences of tighter
regulation.” Ms. Khan said unprecedented liquidity creation on the
global scale has led to record capital inflows into emerging markets.
“This led to the ‘discovery’ of Africa as the so-called final credit
frontier,” Ms. Khan said.

She added that the
development of African frontier markets will depend on a favourable
macroeconomic backdrop as well as market liquidity.

The IMF observed
that capital flows have conferred substantial benefits by facilitating
efficient resource allocation across countries, but prolonged episodes
of high volatility have also presented serious policy challenges.

They called for
further work to advance in bilateral and multilateral surveillance and
policy advice for member countries, based on extensive analytical work
and taking into account country-specific circumstances and relevant
experiences.

The IMF would be
collaborating with other institutions, such as the Bank for
International Settlements, the Financial Stability Board, and national
authorities, in meeting this goal.