Question

Capital account convertibility is seen as the holy grail of financial sector reforms. In this context, discuss the basic criteria’s required for safe capital account convertibility

Answer 1

Capital account convertibility is characteristic of the national financial regime that will help in convertibility of the the domestic assets into the foreign actors at the prevailing market rates in the market and it will be establishing environment for more liquidity in to the economy

Basic criteria which are required for safe capital convertibility-

A. Unrestricted access for the capital market to a large group of persons and individual from foreign countries

B. there should be a proper mechanism for checking up with various transactions so that they can come about any hawala transaction

C. proper regulatory framework should be at place in order to protect the interest of the participants

D. government should be very efficient in order to conduct audits and other required exercises in order to find out a trail of money

E. there should be a liberal regime which will more focus towards promotion of growth and development in economy by attraction of more of the foreign funds

F. Greater disclosure norms should be adopted.