Global financial community should recognize capital controls as an important tool to curb international transmission of crises, Bank of Japan Governor Haruhiko Kuroda suggested during a conference on Wednesday.
"The global financial community must, in its efforts to rebuild the global financial system, come to terms with two issues: capital controls and financial regulation and supervision," he said at the BOJ-IMES Conference, hosted by the Institute for Monetary and Economic Studies, Bank of Japan.
Kuroda said one of the causes of international transmission of the recent financial crisis is financial globalization and the accompanying global upsurge of gross capital flows. This has led to increasing attention over prudential capital controls, he added.
Kuroda noted that even the International Monetary Fund has partially accepted the necessity of capital controls as a macro-prudential policy tool.
He said according to the concept of "financial trilemma", any economy cannot simultaneously achieve three goals of financial integration namely capital mobility, financial stability and national financial policy.
The policymaker was of the view that finding solutions to these issues and building a new global financial system under the trilemma of international finance "are no easy tasks". The global economy has not yet completely shaken off the effects of the global financial crisis, Kuroda observed.
"Even if we could establish a global financial system that is robust at this time, such a system is unlikely to last forever, given that a financial crisis beyond our imaginations may occur in the future." Still, efforts to pursue a more robust global financial system is by no means futile, he added.
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