- Age Bakker, and Bryan Chapple
- Published Date:
- September 2002
|September||T||Short-term overseas borrowing restricted|
|December||T||Those undertaking long-term overseas borrowing required to hold a non-interest-bearing deposit with the Reserve Bank of Australia|
|March||T||Restrictions on inward investment in real estate imposed|
|July||L||Requirement to hold a noninterest-bearing deposit with the Reserve Bank when borrowing overseas was suspended (and not reintroduced)|
|July||L||Monetary limits on overseas investment in equity or real estate abolished|
|December||L||Restrictions on interest-bearing investments by nonresidents abolished|
|1985||L||Exchange rate floated|
|January||L||Most remaining restrictions abolished|
|October||L||Restrictions on inward direct investment eased|
|May||T||Introduction of restrictions on capital inflows, including reserve requirement on increase to nonresident deposits of 25 percent (increased to 75 percent in August 1971)|
|Jarmar||L||Suspension of reserve requirement on increases in nonresident deposits|
|January||L||Abolition of most restrictions on inward direct and portfolio investment|
|August||L||Prior approval no longer required for a range of inward investment transactions|
|February||L||Most remaining restrictions abolished|
|November||L||Abolition of all foreign exchange controls|
|May||T||Complete separation of the official and the free exchange market|
|March||L||Abolition of the dual exchange market|
|July||L||Long-term offshore borrowing by companies permitted|
|March||L||Liberalization of inward and outward portfolio and direct investment|
|December||L||Nonresident purchase of quoted bonds permitted|
|February||T||Restriction of purchases of Danish bonds by nonresidents|
|T||Denmark authorized by European Commission to invoke safeguard measures|
|May||L||Easing of restrictions on purchases of foreign securities and direct investment|
|L||Abrogation of safeguard measures|
|January||L||Abolition of restrictions on purchase of foreign shares by residents|
|June||L||Further liberalization measures|
|October||L||Abolition of all remaining exchange control regulations|
|European Economic Community (EEC)|
|December||L||Liquidation of the European Payments Union|
|L||EEC currencies become externally convertible in current payment transactions|
|May||L||Adoption by Council of First Directive on capital movements|
|December||L||Adoption by Council of Second Directive on capital movements|
|July||T||France authorized by the European Commission to invoke safeguard measures (Decision 68/301/EEC)|
|March||T||Adoption by Council of the directive on regulating international capital flows and neutralizing their undesirable effects on domestic liquidity (Directive 72/156/EEC)|
|December||T||Ireland authorized by the Commission to invoke safeguard measures|
|December||L||Commission sets an expiration date for existing safeguard clauses for France (2 years) and Italy and Ireland (3 years), and limits safeguards to existing restrictions (Decisions 85/14, 15, and 16/EEC)|
|November||T||Greece authorized by the Commission to take certain safeguard measures for a period of three years (Decision 85/594/EEC)|
|T||Adoption by Council of directive (Directive 85/583/EEC) on undertakings for collective investments in transferable securities (UCITS)|
|May||L||Commission presents a program for liberalization of capital movements in European Community|
|June||L||Abrogation of safeguard clause for France|
|November||L||Adoption by Council of Third Directive on capital movements (Directive 86/566/EEC)|
|February||L||Modification of existing safeguard clauses with respect to Greece, Ireland, and Italy to accommodate extension of liberalization obligations under the 1986 directive|
|July||L||Abrogation of safeguard clause for Italy|
|December||T||Safeguard clause for Ireland is extended for one year (Decision 88/12/EEC)|
|June||L||Adoption by Council of the Fourth Directive on capital movements (Directive 88/361/EEC)|
|November||L||Abrogation of safeguard clause for Ireland|
|T||Authorization for Greece to take safeguard measures is extended until the end of 1989 (Decision 88/600/EEC)|
|December||T||Further extension, for six months, of derogation enjoyed by Greece (Decision 89/644/EEC)|
|December||L||Authorized banks able to enter forward exchange contracts to cover merchandise trade risks|
|May||L||Foreigners able to acquire Finnish listed shares and bonds provided transactions were handled by an authorized bank|
|October||T||Raising of trade-related credits of more than 6 months became subject to permission|
|January||L||Abolition of restrictions on raising of trade-related credits and liberalization of foreign travel and emigrant allowances|
|January||L||Easing of obligations to surrender foreign exchange receipts|
|June||L||Authorized banks able to take part in syndicates for foreign bank loans, and to finance such loans with foreign credit|
|December||L||Increase in authorized bank’s ability to lend abroad, invest in foreign securities, and channel long-term foreign credit to domestic borrowers|
|June||T||Sale of markka-denominated bonds to nonresidents prohibited|
|June||L||Ban on sale of markka-denominated bonds to nonresidents eased|
|August||L||Manufacturing and shipping companies able to raise foreign credits|
|June||L||Easing in restrictions on direct investment abroad|
|August||L||Ability to raise foreign credits extended beyond manufacturing and shipping companies|
|August||L||Direct investment abroad by (non financial) companies exempted from authorization|
|September||L||Portfolio investment abroad by (non financial) companies permitted without limit|
|L||Direct investment in Finland no longer requires authorization|
|February||L||Sale of markka-denominated bonds to nonresidents allowed|
|L||Nonresidents allowed to issue markka-denominated bonds in Finland|
|July||L||All restrictions on foreign investment by individuals abolished|
|January||L||Most remaining restrictions abolished (including restrictions on short-term capital movements)|
|October||L||Individuals and comparable corporate entities allowed to raise loans abroad|
|June||L||In corporation of surcharge of 20 percent on official exchange rate in a new reference rate for U.S. dollar|
|June||L||Abolition of 50 percent deposit on foreign exchange purchases by importers|
|January||L||Monetary reform: introduction of the “new” franc, abolition of the Exchange Office|
|February||L||Easing of foreign exchange allowances for travel purposes and other transactions in personal sphere|
|April||L||Abolition of parallel devises-titres market for cross-border transactions by residents in foreign securities|
|L||Further relaxation of exchange controls|
|April||T||Prohibition of payment of interest on French franc deposits held by nonresidents|
|August||T||Curtailment of loans by nonresidents to residents|
|October||L||Abolition of restriction on commercial banks engaging in forward transactions|
|January||L||Introduction of positive system of exchange regulation|
|January||L||Substantial relaxation of exchange controls|
|L||Abolition of prohibition on paying interest on French franc deposits held by nonresidents|
|May||T||Reintroduction of temporary exchange control and of restrictions on allowances for foreign travel by residents|
|September||L||Abolition of exchange control measures introduced in May 1968|
|November||T||Reintroduction of essentially the same exchange control measures as were applied in May 1968|
|August||T||Reintroduction of devises-titres market|
|August||L||Easing of restrictions on outward direct investment and abolition of camel de change for foreign travel allowances|
|April||T||Imposition of minimum reserve requirement on external bank liabilities|
|August||T||Establishment of dual exchange market, comprising official market for import and export transactions and trade-related invisibles and financial franc market for all other transactions|
|October||T||Merger of devises-titres market into dual exchange market|
|March||T||Prohibition of paying interest on bank deposits of nonresidents|
|T||Raising of minimum reserve requirement on growth of external bank liabilities to 100 percent|
|October||L||Abolition of prohibition of payment of interest on bank deposits of nonresidents|
|L||Abolition of minimum reserve requirement on growth of external bank liabilities|
|January||T||Prohibition of French franc borrowing by nonresidents, restriction of forward transactions by residents, and relaxation of borrowing abroad by residents|
|March||T||Abolition of the dual exchange market|
|T||Severe tightening of controls on capital outflows and relaxation of controls on capital inflows|
|July||L||Restrictions on inward and outward direct investment relaxed|
|May||T||Reintroduction to devises-titres market, limitations on leads and lags in trade settlements, and limitations on direct investment abroad|
|March||T||Further restrictions on surrender of export proceeds and on direct investment abroad|
|March||T||Further reduction of foreign travel allowances, a ban on use of personal credit cards abroad, and introduction of carnet de change, a booklet in which foreign exchange purchases were recorded|
|December||L||Some easing of limits on foreign travel allowances and foreign direct investment|
|L||Abolition of carnet de change|
|July||L||Abolition of ban on use of personal credit cards abroad|
|November||L||Easing of controls on direct investment abroad|
|February||L||Easing of inward direct investment originating from non-EEC countries|
|April||L||Authorization of Eurobond issues denominated in French francs|
|September||L||Easing of financing rules for outward direct investment outside the European Community|
|December||L||Easing of regulations for outward portfolio and direct investment|
|January||L||Easing of foreign travel allowances|
|April||L||Elimination of requirement of prior authorization of direct foreign investment|
|May||L||Abolition of devises-titres market, liberalization of purchases of secondary residences abroad, easing of forward foreign exchange operations, and easing of authorization procedures for direct investment abroad|
|November||L||Partial liberalization of bank lending in French francs to nonresidents|
|L||Abolition of administrative control through commercial banks of import and export settlements (domiciliation regime)|
|May||L||Substantial easing of exchange controls for commercial enterprises|
|L||Liberalization of trade in gold|
|July||L||Abolition of limits on tourist travel allowances|
|June||L||Permission for domestic enterprises to operate foreign currency accounts|
|L||Abolition of restrictions on borrowing abroad|
|March||L||Full liberalization of bank lending in French francs to nonresidents|
|June||L||Liberalization of commercial banks’ foreign exchange positions|
|L||Permission granted for all residents to open ECU-denominated accounts|
|January||L||Abolition to all remaining exchange control regulations (Decree 89/938)|
|Germany, Federal Republic of|
|January||L||Permission for residents to maintain foreign currency accounts abroad|
|July||L||Liberalization of inward investment by nonresidents|
|August||L||Liberalization of transactions in German bonds denominated in foreign currency|
|May||L||Abolition of all remaining restrictions on import of capital|
|August||L||Easing of regulations concerning investment abroad by residents|
|June||T||Prohibition to pay interest on deutsche mark deposits held by nonresidents and to sell money market paper to nonresidents|
|September||L||Introduction of new Foreign Trade and Payments Law, establishing a positive system of exchange regulation|
|January||L||Merger of free market for capital transactions with official exchange market|
|March||L||Abolition of restrictions on investments in foreign securities by residents|
|March||T||Introduction of withholding tax (coupon tax) on interest income on assets held by nonresidents|
|January||L||Extension of permission for outward direct investment to the OECD area (previously allowed only in EEC countries)|
|November||L||Easing of limitations on export of banknotes and on settlement requirements|
|December||T||Imposition of minimum reserve requirement on growth of external bank liabilities|
|October||L||Abolition of minimum reserve requirement on growth of external bank liabilities|
|April||T||Reintroduction of minimum reserve requirement on growth of external bank liabilities|
|May||T||Prohibition of payment of interest on bank deposits of nonresidents and of purchases by nonresidents of money market paper|
|March||T||Imposition of a cash reserve (Barde-pot) requirement for liabilities incurred vis-à-vis nonresidents|
|July||T||Prohibition of sales of fixed-interest securities to nonresidents|
|T||Tightening of minimum reserve and Bardepot requirements|
|February||T||Prohibition of sales of all credit instruments to, and of borrowing from, nonresidents|
|June||T||Further tightening of minimum reserve and Bardepot requirements|
|January||L||Abolition of minimum reserve requirement on growth of external bank liabilities|
|February||L||Reduction of Bardepot requirement and abolition of authorization requirements for sale to nonresidents of credit instruments other than domestic fixed-interest securities with maturity of less than 4 years|
|September||L||Abolition of Bardepot requirement|
|September||L||Abolition of prohibition on paying interest on deutsche mark deposits held by nonresidents|
|L||Abolition of authorization requirements for sales to nonresidents of securities with maturity of 2 to 4 years|
|December||T||Reintraduction of authorization requirements for sales to nonresidents of securities with a maturity less than 4 years|
|January||T||Reintroduction of minimum reserve requirement on growth of external bank liabilities|
|June||L||Abolition of minimum reserve requirement on growth of external bank liabilities|
|March||L||Relaxation of restrictions on sale of short-term paper to nonresidents|
|March||L||All restrictions on sale of short-term deutsche mark paper to nonresidents abolished|
|August||L||Abolition of coupon tax on interest income on assets held by nonresidents|
|June||T||Reimposition of reserve requirement (of 50 percent) on capital inflows with commercial banks|
|December||T||In consequence of Ireland’s decision to participate in the EMS, exchange controls extended to the United Kingdom|
|T||Abolition of investment currency market|
|September||L||Easing of restrictions on acquiring of foreign securities|
|January||L||Easing of restrictions on long-term outflows|
|January||L||Liberalization of purchases of medium- and long-term foreign securities by residents|
|April||L||Further relaxation and easing of administrative requirements|
|January||L||Easing of restrictions on purchases of foreign securities, borrowing in foreign currency, and extending loans to nonresidents|
|January||L||Abolition of all remaining exchange control regulations|
|June||T||Introduction of measures aimed at restricting capital outflows, ban on net external credit position of banks, and suspension of external convertibility of Italian banknotes|
|January||T||Establishment of dual exchange market|
|July||T||Introduction of 50 percent compulsory non-interest-bearing deposit scheme with respect to most capital outflows|
|March||L||Abolition of dual exchange market|
|May||T||Introduction of temporary compulsory non-interest-bearing deposit scheme with respect to imports, excluding raw materials, oil, and investment goods|
|T||Italy authorized by the Commission to invoke safeguard measures (Decision 74/287/EEC)|
|March||T||Reintroduction of compulsory bank financing in foreign exchange for advance settlement of imports|
|May||T||Reintroduction of the non-interest-bearing import-deposit scheme|
|October||T||Imposition of temporary special tax on purchases of foreign currency and payments abroad|
|T||Extension of compulsory import-deposit scheme|
|February||L||Expiration of special tax on foreign currency purchases|
|April||L||Abolition of compulsory import-deposit scheme|
|May||T||Reintroduction of non-interest-bearing deposit scheme with respect to purchases of foreign currency by residents|
|February||L||Abolition of the advance deposit scheme|
|December||L||Certain direct investment abroad is exempted from the 50 percent non-interest-bearing deposit requirements|
|December||L||Reduction of compulsory zero-deposit requirements on portfolio investment abroad|
|October||L||Abolition of compulsory deposit requirement for direct investment abroad|
|L||Residents’ foreign exchange deposits made freely convertible into other currencies and ban on transfer of foreign securities and loans between residents lifted|
|L||Reduction of compulsory deposit requirements on other transactions|
|August||L||Restoration of external convertibility of Italian banknotes|
|March||T||Introduction of reserve requirement on bank deposits in foreign currency|
|May||L||Abolition of non-interest-bearing deposit requirement for investment abroad in securities and real estate|
|September||T||Shortening of holding periods of foreign currencies|
|June||L||Restrictions on tourist spending eased|
|October||L||Introduction of a positive system of exchange control|
|L||Significant relaxation of controls|
|January||L||Abolition of restrictions on purchases of foreign securities by residents|
|May||Abolition of all remaining exchange control regulations|
|June||L||Controls on foreign direct investment eased|
|July||L||Introduction of nonresident free yen accounts|
|July||L||Further easing in foreign direct investment regulations|
|July||L||Restrictions on outward direct and portfolio investment eased|
|September||T||Restrictions on yen conversion of advance export receipts|
|June||T||Marginal reserve requirement imposed on nonresident free yen accounts|
|October||T||Restrictions on the purchase of Japanese securities by nonresidents|
|November||L||Restrictions on portfolio outflows eased further|
|November||L||Easing of restrictions on advance receipt of export payments|
|November||T||Acquisition of foreign short-term (maturity of less than six months) securities by residents restricted|
|December||L||Easing of restrictions on purchase of Japanese securities and lowering of marginal reserve requirement on nonresident free yen accounts|
|January||T||Tightening of portfolio outflow restrictions, including voluntary restraints on institutional investors|
|April||T||Japanese banks instructed not to finance “non-urgent” foreign direct investment|
|September||L||Marginal reserve requirement on nonresident free yen accounts abolished|
|March||L||Abolition of “voluntary restraints” on banks’ purchase of foreign securities|
|June||L||Restrictions on foreign currency accounts of residents eased|
|June||T||Reserve requirements introduced on foreign currency liabilities of foreign exchange banks, residents’ external foreign currency deposits, and nonresident free yen accounts.|
|March||T||Marginal reserve requirement on nonresident free yen accounts increased, further restrictions placed on portfolio inflows|
|February||L||Marginal reserve requirement on nonresident free yen accounts abolished|
|February||L||Restrictions on nonresident purchase of bonds eased|
|May||L||Easing of restrictions on portfolio flows|
|March||L||Easing of restrictions on portfolio inflows|
|December||L||Revision of Foreign Exchange and Foreign Trade Control Law|
|June||L||Liberalization of short-term Euroyen lending by Japanese banks|
|April||L||Abolition of requirement to link forward exchange transactions to trade|
|May||L||Publication of Report on Yen/Dollar Exchange Issues|
|June||L||Further easing of portfolio flows|
|May||L||Abolition of prior notification requirement for residents undertaking short-term borrowing in Euroyen|
|August||L||Easing of limits on offshore investment by institutional investors|
|December||L||Japanese Offshore Market (JOM) opened|
|April||L||Easing of restrictions on flows of funds between JOM and domestic markets|
|April||L||Restrictions on inward foreign direct investment eased|
|April||L||Introduction of Foreign Exchange and Foreign Trade Control Law|
|July||L||Issuance of general licenses for a number of types of outward capital movements|
|October||L||Further relaxation of exchange controls|
|December||L||Opening up of Netherlands capital market for issuance of foreign guilder loans up to a ceiling|
|October||L||Abolition of “free market” for cross-border transactions in securities|
|September||T||Introduction of free market for bond transactions (“0-circuit”)|
|March||T||Prohibition of payment of interest on guilder deposits held by non-residents|
|July||T||Further tightening of exchange controls, affecting leads and lags and the taking up of foreign credit by residents|
|February||L||Abolition of closed bond circuit|
|January||L||Abolition of prohibition on paying interest on guilder deposits held by nonresidents|
|September||L||Switch over to a positive system of exchange control|
|L||Further easing of regulations concerning capital outflows|
|May||L||Coming into force of the External Financial Relations Act, which supersedes the Exchange Control Decree of 1945|
|July||L||Abolition of all remaining restrictions on capital inflows|
|October||L||Abolition of all remaining restrictions on capital outflows|
|L||Full liberalization of all capital transactions.|
|January||T||Borrowing in New Zealand by foreign companies resident in New Zealand and offshore borrowing by New Zealand companies require approval in all cases|
|June||T||Restrictions on overseas borrowing by New Zealand companies tightened|
|August||L||Financial institutions allowed to borrow offshore for industrial development|
|January||T||Restrictions on dealing in foreign exchange tightened|
|November||L||All restrictions on access of foreign-owned companies operating in New Zealand to domestic capital markets abolished|
|L||Financial institutions permitted to borrow abroad|
|December||L||All controls on both inward and outward foreign exchange transactions abolished|
|L||Rules limiting offshore borrowing eased|
|March||L||The New Zealand dollar floated|
|October||L||Permission no longer required for offshore borrowing|
|L||Rules limiting foreign companies borrowing or issuing share capital in New Zealand abolished|
|August||L||Inward direct investment rules eased|
|March||L||Relaxation of foreign travel allowances|
|September||L||Relaxation of controls on purchases of foreign securities by residents|
|December||L||Abolition of prior authorization requirement of inward direct investment|
|March||L||Easing of restrictions on acquisition of foreign securities|
|June||L||Liberalization of direct and portfolio investment abroad|
|September||L||Abolition of compulsory deposit requirement against foreign currency|
|December||L||Abolition of all remaining exchange control regulations|
|June||L||Liberalization of inward direct investment and right of establishment|
|November||L||Relaxation of controls on outward direct investment|
|October||L||Relaxation of controls on foreign currency operations by commercial banks|
|December||L||Liberalization of outward direct investment and trade in medium-and long-term foreign securities|
|January||T||Imposition of nonremunerated reserve requirement on financial credits taken up abroad|
|September||L||Permission granted for residents to open accounts denominated in ECUs|
|April||L||Further relaxation measures|
|April||L||Abolition of restrictions on opening of foreign currency accounts|
|February||L||Abolition of all remaining exchange control regulations|
|September||T||Reintroduction of certain restrictions, mainly with respect to short-term financial credits|
|November||L||Abolition of all remaining exchange control regulations|
|January||L||Foreign-currency borrowing via banks permitted for trade financing|
|June||L||Liberalization of controls on forward exchange dealing|
|1981||L||Conditions for financing direct investment abroad from within Sweden made less restrictive|
|April||L||Trading of foreign shares permitted on Swedish stock market|
|February||L||Easing of restrictions on offshore borrowing by enterprises and local authorities|
|March||L||Restrictions on forward dealing further liberalized|
|June||L||Abolition of requirement to finance outward direct investment using foreign currency loans|
|January||L||Further easing of restrictions on foreign exchange and forward transactions|
|November||L||Easing of restrictions on the purchase of foreign shares|
|December||L||Easing of restrictions on inward and outward direct investment|
|June||L||Abolition of almost all remaining exchange controls|
|December||L||Branches of foreign banks permitted to participate in Riksbank’s clearing system on the same terms as Swedish banks|
|July||T||Imposition of 100 percent reserve requirement on marginal increases in nonresident deposit, and ban on interest payments on new nonresident deposits|
|July||T||Restrictions on residents’ offshore borrowing imposed, nonresident purchase of securities and real estate prohibited, and “negative” interest rate introduced on marginal nonresident deposits|
|October||L||Suspension of negative interest rate on nonresident deposits|
|November||T||Reintroduction of negative interest rate|
|February||T||Restrictions placed on imports of foreign banknotes and purchase of domestic securities by foreigners|
|April||T||Scope of deposits to which negative interest rate applied widened|
|January||L||Abolition of restrictions on imports of foreign bank notes and on purchase of domestic securities by foreigners|
|May||L||Licensing of residents’ offshore borrowing abolished|
|December||L||Suspension of negative interest rate on nonresident deposits|
|February||L||Ban on payment of interest on nonresident savings accounts lifted|
|August||L||Abolition of remaining restrictions on payment of interest on nonresident deposits|
|January||L||Easing of issue requirements for foreign bonds|
|January||L||Limits on foreign bond issues raised|
|May||L||Limits on foreign bond issues abolished|
|December||L||Sterling becomes convertible|
|July||T||Restrictions on direct investment outside sterling area introduced|
|April||L||Easing of restrictions on repatriation of nonresidents’ capital|
|August||T||Introduction of controls on portfolio inflows|
|December||L||Abolition of controls on portfolio inflows|
|July||T||Easing of capital controls vis-à-vis EEC members postponed|
|November||T||Restrictions on banks’ financing trade between countries other than the United Kingdom imposed, conversion of foreign currency bills into sterling by banks no longer permitted|
|December||T||Monitoring of sales of foreign currency for sterling tightened|
|October||L||Easing of restrictions on sterling borrowing to fund inward direct investment and also on travel allowances for residents|
|December||L||Easing of capital outflows to other EEC countries|
|June||L||Easing of restrictions on resident institutional investors investing in foreign currency securities|
|January||L||Restrictions on sterling lending to nonresident-controlled companies operating in the United Kingdom largely abolished|
|June||L||Easing of restrictions on outward capital flows|
|July||L||All restrictions on outward direct investment abolished and outward portfolio investment significantly liberalized|
|October||L||The Exchange Control Act of 1947 suspended and all remaining barriers to inward and outward flows of capital removed|
|L||Abolition of remaining exchange controls|
|July||T||Announcement of introduction of Interest Equalization Tax (enacted 1964)|
|March||T||Introduction of voluntary guidelines limiting foreign lending and investment|
|January||T||Guidelines limiting foreign direct investment made mandatory|
|January||L||Abolition of capital controls, including voluntary guidelines|
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As noted in Section I, monetary policy or other motives may also have played sonic pan in motivating capital controls—even where the exchange rate appeared to be the most important factor.
See Fukao (1990).
Nonresident free yen accounts were introduced in July 1960. Nonresidents could deposit yen balances (received from current account transactions or the sale of foreign exchange) into these accounts. Although yen balances; in these accounts could be freely converted back to foreign currencies, other yen balances could not be converted into foreign exchange.
In 1971, the floating of the deutsche mark and the suspension of the convertibility of the U.S. dollar into gold led to an expectation of a yen revaluation. Large capital inflows occurred, and Japan’s official reserves increased from US$4.4 billion to US$7.9 billion in the first seven months of 1971, In August alone, just before the floating of the yen, capital inflows of US$4 billion were recorded through channels such as advance payments for exports.
In the devises-titres market, proceeds from sales of foreign securities by residents were sold in an unregulated exchange market to other residents to enable them to acquire foreign securities.
Restrictions included the establishment of a 100 percent marginal reserve requirement on incremental French franc deposits of nonresidents. At the same time, controls on capital outflows were maintained, partly because there was a simultaneous tendency for the French franc to depreciate against the deutsche mark.
In April 1972, after the demise of the Bretton Woods system, the snake was established as a multilateral European exchange arrangement—with bilateral fixed, but adjustable fluctuation margins—aimed at stabilizing intra-European exchange rates.
The tightening of controls on capital outflows (in March 1974) was combined with the abolition of the dual exchange market, which, on the whole, had been considered rather ineffective.
In 1984, expiration dates were set for the remaining recourse to safeguard clauses for France (two years), which had been invoked since the 1968 civil unrest, and for Italy and Ireland (three years).
The Single Act fell short of enacting the complete liberalization of capital movements. However, it stipulated that further obligations concerning the freedom for capital movements could be taken by qualified majority and that unanimity would be required for measures that would constitute a step backward. This greatly facilitated the adoption of secondary legislation with respect to the liberalization of capital movements.
The Maastricht Treaty establishing the EMU was not approved in a referendum in June 1992 in Denmark.
Spain introduced non-interest-bearing cash reserves for incremental peseta lending to nonresidents. Portugal intensified the enforcement of existing regulations.
See Fieleke (1994).
See, for instance, Eichengreen and Wyplosz (1993). (The Tobin tax, proposed by economist James Tobin of Yale University, would be a tax on transactions in foreign exchange markets.)
Following balance of payments problems in Canada in early 1968, all Canadian transactions were exempted from restrictions under U.S. balance of payments programs. In contrast, the Japanese balance of payments position improved and the exemption for long-term investment in Japan was ended in 1969.
The Board of Governors of the Federal Reserve System was given the authority to impose regulations (and make the program mandatory) in 1968. However, the Board chose to continue with the voluntary nature of the scheme, given the widespread cooperation from financial institutions.
An additional ceiling to finance U.S. exports was introduced at the end of 1969 to ensure that the program did not hinder exports. A more significant easing in the program took place in November 1971 when all foreign credit to finance imports was exempted from the program.
Although the growth of the Eurodollar market was partly at the expense of U.S.based financial markets, U.S. banks were very active in this market and reported significant earnings from their international activities.
A minimum reserve requirement on the growth of external liabilities, which had applied from December 1968 until October 1969, had been reintroduced in April 1970.
A key objective of industrial policy was to prevent the takeover of innovative Japanese companies by foreign competitors. See Ito (1992) and Argy and Stein (1997) for a more detailed discussion of Japanese industrial policy.
The Gensaki market was a market for repurchase agreements in which nonfinancial institutions were able to participate. Nonresidents sere allowed to access the market from 1979 onward.
The real demand principle was eventually abolished in April 1984.
Frankel (1984) provides a summary of the events leading up to the establishment of the working group, including a discussion of a possible misalignment in bilateral exchange rates. He argues that although the stated purpose of the agreement was to bring about a yen appreciation, the changes agreed to were, in practice, more likely to put (temporary) downward pressure on the value of the yen.
Segmentation rules for offshore activities were also less strict than those applied domestically.
This position was reversed in the early 1990s, when Japanese banks reduced their Euromarket operations.
Bond issues by Japanese corporations (both foreign and domestic) rose from ¥1.7 trillion in the year ending March 1980 to ¥6.8 trillion in the year ending March 1985, and to ¥21.8 trillion in the year ending March 1989. Offshore issues rose from around 40 percent of total issues in 1980 to around 60 percent in 1989.
Issuing costs were also generally lower offshore (see Takeda and Turner, 1992).
Fukao (1990) notes that institutions did not invest offshore to the maximum extent permitted, suggesting that the new limits sere not binding.
Osugi (1990), p. 14.
Ito (1992) illustrates this on the basis of covered interest parity calculations. In contrast, prior to 1980, capital controls appear to have been at least partially effective in insulating Japanese financial markets. Fukao (1990) argues that controls tended to be effective when initially introduced, but that their effectiveness gradually eroded.
An indication of the extent of the overseas expansion of financial institutions is provided by foreign direct investment data. Osugi (1990) documents that foreign direct investment by banking and insurance companies exceeded that by manufacturing companies between 1985 and 1987.
The debt level of nonfinancial corporations increased from 101 percent of GDP in 1985 to 135 percent in 1990. For the household sector, debt as a share of disposable income rose from 68 percent to 96 percent in the same period.
The ratio of financial assets to liabilities for the manufacturing sector rose from about 0.6 at the beginning of the 1980s to more than 1 in 1988.
Banks had traditionally operated with interest rate spreads that were largely fixed, and therefore profitability was determined mainly by market share. Deregulation placed downward pressure on interest rate margins while also leading to greater competition between lenders for market share Kanaya and Woo (2000) note that banks reduced credit standards during the asset price boom in their attempts to continue lending.
Government involvement in the economy was extensive. This nationalization process added companies accounting for around 15 percent of industrial activity and raised government control of the banking sector to 85-90 percent (Barker, Britton, and Major, 1984).
In contrast, the policy objective of the French authorities of ensuring that strategic firms benefit from adequate financial conditions had attracted additional foreign capital inflows.
See Galy (1988).
Grilli and Roubini argue, in an article included in Conti and Hamaui (1993), that the removal of capital controls in Europe may have reduced asymmetric intra-EMS exchange rate responses to movements in the U.S. dollar rate by increasing asset substitutability.
These exemptions included foreign direct investment. When, in the mid-1970s, serious balance of payments problems arose, further delays were granted. France had been granted a derogation from the liberalization directive since 1968 under the safeguard clause.
Alternatively, exemptions for foreign direct investment were granted if the proposal could be expected to be beneficial for the balance of payments. In order to secure such benefit, a substantial part of the profits earned abroad had to be repatriated. In order to enforce compliance, a large administrative apparatus was needed to separate cross-border current account transactions from investment transactions.
Artis and Taylor (1989), p. 169.
In mid-1979, official foreign reserves were US$22 billion (equivalent to almost six months of imports) and exceeded the outstanding stock of short-term and medium-term official debt, which was US$15.5 billion.
Apart from ceilings on foreign travel allowances and similar restrictions, the main capital controls remaining in mid-1979 were the obligation to finance foreign direct investment abroad in excess of £5 million in foreign currency, the prohibition of sterling bank financing of trade between third countries, and the obligation to execute cross-border portfolio transactions through the investment currency market. In 1979, a window of opportunity arose to abolish the investment currency market, because the effective premium for U.S. dollar purchases had fallen from 50 percent at the beginning of the year to 6 percent by midyear. At such relatively low premium levels, the windfall capita losses in pounds sterling for portfolio holdings were quite limited.
See Artis and Taylor (1989), p. 172, who summarize earlier studies on this issue.
Carey and Duggan (1986) briefly document the history and abolition of exchange controls.
At the same time, the exchange rate was fixed against a basket of currencies, replacing an earlier “crawling-peg” system that resulted in frequent small devaluations based on inflation differentials between New Zealand and its major trading partners.
Official borrowings in the month prior to the election (mainly to support the exchange rate) totaled US$1.2 billion (3.5 percent of GDP). See the discussion in Reserve Bank of New Zealand (1985).
Limits on the spot currency holdings of foreign exchange dealers were relaxed and then abolished at the end of the year (aside from prudential requirements). Rules limiting private offshore borrowing were abolished in October 1984. From November 1984. New Zealand financial institutions were permitted to borrow funds offshore, while foreign-owned companies operating in New Zealand were able to raise funds on domestic capital markets.
There has been no intervention in foreign exchange markets since the New Zealand dollar was floated.
Direct investment inflows rose from US$175 million in 1983 to US$1.3 billion in 1985, During the same period, the increase in direct investment outflows was less dramatic, rising from US$75 million to US$309 million. The privatization of government businesses is likely to have influenced inflows from the late 1980s. The New Zealand dollar appreciated by almost 50 percent against the U.S. dollar between the beginning of 1985 and the second quarter of 1988. more than offsetting the 20 percent depreciation of mid-1984.
The introduction of, and subsequent increase in, a goods and services tax also influenced the inflation rate in 1986 and 1989. respectively.
Private sector debt increased from 11.4 percent of GDP in March 1984 to about 14 percent by March 1987.
In Norway and Finland, these crises were also linked to falling oil prices and to the collapse of trade with the former Soviet Union. See Drees and Pazarbaşioģlu (1998) for further discussion.
Strengthening prudential supervision was seen by some at the time as running counter to the ideology underpinning deregulation and liberalization (see Thomson, 1991). Market participants may also be overconfident of their ability to respond to the new environment. For example, in arguing for financial sector reform. Jonung (1986) claims that “a bank collapse was out of the question” (p.116) in Sweden and considers that there was a tendency to underestimate the market’s ability to self-regulate. In fact, a lightening in prudential standards was required following financial sector reform.
The fact that liberalization often followed changes of government (with associated changes in economic philosophy) in both the United Kingdom and New Zealand suggests that political factors also influence the decision on whether or not to liberalize.
See Demirgüç-Kunt and Detragiache (1998) for an investigation of the links between financial sector reform and financial crisis. They conclude that the institutional environment has an important influence on the risk of a crisis.