OECD presents revised Codes on capital flows to G20

capital flow

(Christine Roy, Unsplash)

This article is brought to you in association with OECD.


Cross-border capital flows are an integral component of international finance, but require a balanced framework for removing unnecessary barriers to the movement of capital while providing governments flexibility to cope with instances of economic or financial instability,  OECD Secretary-General Angel Gurria said today.

The recently revised OECD Code of Liberalisation of Capital Movements remains the sole multilateral agreement among states dedicated to openness, transparency and mutual accountability in cross-border capital flow management, Mr Gurria said during a press briefing with Japanese Finance Minister Taro Aso in the margins of the meeting of G20 Finance Ministers and Central Bank Governors, taking place June 8-9 in Fukuoka, Japan.

“Ten years after the global financial crisis, all adherents to the Code have agreed that an enhanced and modern multilateral framework for managing capital flows is needed, and have taken action to make the Code stronger, giving it better governance, transparency, and decision-making capacity,” Mr Gurria said.

The OECD Code of Liberalisation of Capital Movements (the Code) was born with the OECD in 1961, at a time when many OECD countries were in the process of economic recovery and development and when the international movement of capital faced many barriers. It provides the world’s only multilateral agreement covering the full range of cross-border capital flows, and is binding for the 36 OECD countries, including eleven G20 members. The Code has been open to non-OECD members since 2012.

The Code is based on several key premises:

  • an open multilateral regime for international capital flows serves the global economy better than closed capital accounts, particularly as financial markets play an increasing role in allocating cross-border saving and investment efficiently in support of a sustainable global recovery.
  • an adhering country should benefit from the liberalisation measures of other adhering countries regardless of its own degree of openness.
  • reintroducing capital flow restrictions can play a role in specific circumstances, but transparency, accountability and proportionality are critical.

The updated Code presented by Mr Gurria and Minister Aso better adapts the framework to current requirements of capital flow management, for both advanced and emerging economies alike. The revised Code provides countries with the flexibility needed to respond to financial stability concerns, linked to large capital inflows and outflows, without diluting the Code’s high standards of openness.

“In a financially ever more integrated world with increased capital flow spillovers, the Code provides a solid platform for multilateral debate, cooperation and consensus-making, discouraging countries from pursuing ‘beggar-thy-neighbour policies,’ Mr Gurria said. “Fifteen of the G20 members are either adherent or in the process of adherence to the Code, demonstrating its value as a tool for international cooperation on capital flow management in the G20 context.”

Looking ahead, the Code will become increasingly relevant as major emerging economies open their capital accounts, Mr Gurria said. In Latin America, Argentina, Brazil, Colombia, Costa Rica and Peru are following the path of their OECD neighbours Chile and Mexico in making credible commitments to progressive liberalisation as part of the process of adherence to the Code.

South Africa is the first African country to have applied to the Code and is making important progress in modernizing its framework for exchange controls. India and China are also gradually moving towards allowing greater capital mobility. “Going forward, I hope and trust that a broader set of countries will be able to rely on the revised Code as they continue opening their economies,” Mr Gurria said.

The OECD and the Japanese G20 Presidency will co-host a high-level policy seminar on the Codes on 11 September in Paris. Integration or Fragmentation? International Capital Flows in the Post-Crisis World will bring together policy experts from all G20 countries for discussions on how the revised OECD Codes can improve transparency, accountability, credibility and trust.

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