The Current State of Capital Movement Freedom in Chile, China, Malaysia, Taiwan and Russia - Example

Name: Tutor: Title: Report Course: Date: Capital Controls. The current state of capital movement freedom in Chile, China, Malaysia, Taiwan and Russia Capital controls are restrictions made on capital movement across the borders of a country and take different forms. These may include quantity-based, price-based or majorly focus on capital movement into and out of the country. A number of developing countries assert that the benefits achieved from free capital movement across the borders of a country overshadow the costs, and thus implement very limited capital controls. Free movement of capital in and out of the country increases the market discipline which in turn promotes efficient allocation of its resources as well as lead to higher productivity growth. However, capital movement freedom across the borders of a country can cause high costs. For example, countries that rely more on the foreign financing become vulnerable to the sudden stops within the capital inflows (Becker & Noone 2009). This cause financial crisis or serious currency depreciations. Capital flows play a significant role within the balance of payments crises where a balance-of-payments problem may be created. This implies that if the exchange rate of a country is not well-defended , the problem of expediting devaluation may occur under the fixed-exchange rates (Günther 2010). The state of capital controls in Chile has generally taken a positive view because of the strong economic performance as a result of successful implementation of capital controls. The inflow of capital controls makes the monetary policy to be more independent, changes the composition of a country’s capital flows as well as reduce the exact pressures on exchange rates (Forbes 2010). In Malaysia, the imposed controls have reduced the capital outflows, creating more free monetary policies than Chilean controls on the inflows which seem not to be conclusive. Furthermore, Malaysian experience lacks enough systematic evidence of effectiveness imposing of controls (Hood 2011). Capital controls are significant to the economy because they act as protection against volatility. This implies that capital controls can be used to prevent any dramatic reversals within the capital flows. Controls also prevent contagion by safeguarding the economy against the financial panic of its neighbouring economies. A key component underlying the argument that controls are effective measures used as the temporary last resort is the need to maintain a stable exchange rate. Since the institutional organizations of the developing nations are perceived to be fragile and not proficient enough to deal with the hectic global issues of financial management. Capital controls become the most useful measures to protect the infant financial markets. It involves provision of shelter from the speculators point of view to allow institutions some time grow and gain financial ability (Forbes 2009). The most recent evidence presented by World Trade Organization on the progress of talks on issues of international trade in services and intellectual property In this section, information is obtained about the intellectual property within the World Trade Organization (WTO), news as well as the official records of TRIPS Council activities to give details of the WTO’s work with the international organizations in the same field. For example, the Doha Round has been considered the largest round of the trade negotiations among the leading WTO membership. Doha Round focus on achieving the major reforms in the global trading system through the establishment of lower trade barriers in addition to the revised trade rules. This round is as well referred to as the Doha Development Agenda that fundamentally focus on improving the trading prospects, particularly in developed countries. The Doha Round was legitimately launched during the Fourth Ministerial Conference of WTO in Doha and Qatar where the Doha Ministerial Affirmation became the mandate for trade negotiations. This includes agriculture, services as well as intellectual property where an approved decision is made by ministers on how to effectively address the trade issues that developing countries face in their attempt to implement the current WTO agreements (World Trade Organization 2010). It is also important to understand the WTO agreements on the intellectual property, service protection and enforcement. In this case, the Agreement on the Trade-Related aspects of the Intellectual Property rights (TRIPS) is the most appropriate WTO agreement. This is because it introduced the intellectual property rules that have proved to be effective in the multilateral trading system. Ideas and knowledge are increasingly considered important aspects of trade. Various products that were initially traded as the low-technology commodities have acquired higher proportion of both invention and design in their valuable contents. In case there are trade disputes concerning the intellectual property rights, a system is provided to help in the WTO’s dispute settlement. This is made available to all the concened parties. Therefore, creators are entitled to the right to protect themselves from other people who illegally use their designs and inventions. This gives them the right to freely negotiate payment as compensation for other people using them (World Trade Organization 2010). The WTO’s TRIPS are the new internationally-accepted trade rules to ensure intellectual property rights that settle disputes more systematically. The agreement narrows the gaps through which such rights are protected across the world as well as to make them recognized under the universally-accepted international rules. It determines the minimum levels of protection a government is expected to to give to fellow WTO members on the issue of intellectual property. Intellectual property protections that promote the creativity and invention are highly valued in society, particularly if the protection period expired at the time when creations and inventions join the public domain. The WTO’s TRIPS agreement covers five major issues, how the key principles of a trading system as well as other intellectual property agreements within the world are to be applied. It also focuses on how to provide adequate protection for the intellectual property rights, ways through which countries are required to enforce the rights more adequately within their own territories. The agreement aims at settling disputes on the intellectual property between the WTO members (Moschini 2008). Bank for International Settlements (BIS). The degree to which the US. dollar, the yen and the Euro are currently overvalued or undervalued The U.S dollar , the Japanese yen and the Euro are considered as the G-3 foreign-exchange watcher. The three currencies have recently accounted for over 70% of the total foreign exchange transactions as reported in the 2010 data of the Bank for International Settlement (BIS). The BIS provides effective exchange rate indices that are more expanded and updated. In order to reflect the changes that occur in the world trade, different indices have been created and updated through the use of weights based on the trade data ranging from 2008-2010 (Becker & Noone 2008). Currencies statistics Name Price Change % Chg EUR/USD 1.2921 -0.00 -0.08% EUR/USD USD/JPY 79.9250 0.04 +0.05% USD/JPY GBP/USD 1.6069 -0.01 -0.38% From the above Bank for International Settlements data, the U.S . dollar is highly valued against the Japanse yen with +0.05% but less valued against te EURO with 0.08%. The fears on the global economy have also made the value of the Euro to fall. Research indicates that the Euro fell against the dollar after the disappointing manufacturing data from India and China received visitors who seemed to be worried about the slowing global economy. It has been reported that the Euro fell to about $ 1.2925 in the late trading. This was estimated to be 1.4% against the dollar due to the elections carried out in Greece and France. The actual effective exchange rates of the Japan’s yen and the Euro are broadly related to the medium-term fundamentals. However, the U.S dollar is considered to be on the strong side of the fundamentals as reported by the IMF during the meeting with a Group that comprised of the 20 economic powers. In attacking the Euro, all media is struggling to discover why the Euro is strong. It has been argued that though the EUR-USD has decreased abit, it is still less to the expectations because the current market is largely manipulated. Thus, the market does not necessarily consider the fundamentals and technical analysis as it can be identified on the above chart that the EURUSD is struggling with the 1.3 support, This could decrease alittle bit, though not moving closer to parity (Morgan 2010). The analysis of the G-3 currencies indicates that the U.S dollar has taken a league of its own in the currency markets. Therefore, the U.S still occupies the largest economy in the world wth its dollar continues to take lead as the commonly traded currency world wide. The latest survey carried out by BIS provides the view that the U.S dollar was used in about 45% of the currency transaction as per the 2010 data collection. This is what gives the dollar a critical mass status of reserve currency. Therefore, the reserve currency status, the U.S economy as well as the size and composition of capital markets justify the unique nature of the dollar. Integrating the Euro drivers, it is quite clear that valuations as well as trade flows do not create real biases for yen currency. However, the Euro-supportive in capital flows could lead to improved international investor sentiment. It has been discovered that for the past 20 years, the GDP growth of Japan has averaged less compared to have of the overall developed markets. At the same period, the value of the dollar has decreased by 39% against the yen (Morgan 2010). Bibliography Becker, C & Noone, C., (2009), Volatility in the international capital movements, Research Discussion Papers, Reserve Bank of Australia. Becker, C & Noone, C., (2008), Volatility and persistence of capital flows, Regional Financial Integration in Asia, Present and future, BIS Papers No.42, 159-180. Forbes, K., (2009), The Microeconomic Evidence on Capital Controls: No Free Lunch. In Sebastian Edwards, ed. Capital Controls and Capital Flows in Emerging Economies, Chicago: University of Chicago Press. Forbes, K., (2010), One Cost of the Chilean Capital Controls: Increased Financial Constraints for Smaller Traded Firms. Journal of International Economics. Günther, S., (2010), The Political Economy of Capital Controls, New York, Cambridge University Press. Hood, R., (2011), Malaysia Capital Controls,World Bank Working Paper no. 2536, p. 1. Morgan, J.P., (2010), Asset Management. Retrieved May 12, 2012 from, Moschini, G., (2008), Intellectual Property Rights and the World Trade Organization: Retrospect and Prospects, Staff General Research Papers 10442, Iowa State University. World Trade Organization, (2010), International Trade Statistics, Geneva: WTO. Read More