Essays in the Tradition of Jane D'Arista
Edited by Gerald A. Epstein, Tom Schlesinger and Matías Vernengo
Chapter 10: Would a North American monetary union protect Canada and Mexico against the ravages of “Dutch disease”? A post-financial crisis perspective
The 1990s saw global implementation of the Washington Consensus, a key element of which was financial liberalization that included promotion of international financial capital mobility. This chapter re-examines the economics of international financial capital mobility and argues there are good economic reasons for restoring capital controls as a standard part of the policy arsenal. The current moment constitutes an opportune time to re-engage this issue. The policy debate over capital controls has been closed for the past 25 years. Now, it is gradually being pried open for both political and economic reasons.2 At the political level there is increasing popular disenchantment with globalization. At the economic level, proponents of financial liberalization were humbled by the unexpectedness and severity of the East Asian financial crisis of 1997. That crisis has compelled even die-hard liberalizers to qualify talk of capital flow liberalization in terms of a) prior development of appropriate financial market institutions, and b) sequencing of reforms that start with domestic financial markets and only extend gradually to international opening.
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