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With the exception of financial crisis episodes, financial openness has increased across countries in recent decades. With international agreements now cementing the relatively open capital accounts of developed economies, the focus of the debate on capital account liberalization has moved on to emerging market economies (EMEs). While capital account liberalization can be desirable in improving access to finance, recent findings indicate that capital controls may be useful in strengthening financial stability in EMEs and in securing monetary policy autonomy against volatility of international capital flows. Recent developments, policies, and the academic debate are considered in light of the gaps in our understanding of how to apply capital controls in combination with other policy instruments, as well as the uncertainty over how to liberalize the capital account while maintaining financial stability. [ABSTRACT FROM AUTHOR]

Should China continue to open its financial system? Our answer to this question is positive since financial opening is necessary for supporting economic innovation, containing financial risks and participating in international economic governance. However, the needs some new ideas in devising next-stage financial opening policies including replacing the experimental approach by more systemic method and top-level design, combining ‘using reform to assist opening’ and ‘promoting reform through opening’, and taking into full account of the spillover effects of Chinese financial policies. Finally, we make policy recommendations in seven key areas, including enforcing better policy coordination, devising macro-prudential regulations, increasing exchange rate flexibility, opening the domestic financial markets, relaxing restrictions on businesses of foreign financial institutions, improving external financing cooperation and adopting prudent cross-border capital flow management. [ABSTRACT FROM AUTHOR]