Currency Wars, Coordination, and Capital Controls

The strong monetary policy actions undertaken by advanced economies’ central banks have led to complaints of “currency wars” by some emerging market economies, and to widespread demands for more macroeconomic policy coordination. This chapter revisits these issues. It concludes that, while advanced economies’ monetary policies indeed have had substantial spillover effects on emerging market economies, there was and still is little room for coordination. It then argues that, from the viewpoints of both macro and financial stability, restrictions on capital flows were and are the more natural instrument to achieve a better outcome.