Controlling international capital flows

The East Asian financial crisis in the late 1990s has challenged the widely-held belief that international financial markets should be deregulated. The common arguments both for and against free international capital flows are analysed and contrasted. Given the existence of various distortions and market failures in the global economy, there is a case for some degree of control. The extension and sharpening of market-based prudential instruments appears to be the appropriate way of improving control to avoid the type of crisis that occurred in East Asia.