The Challenges of Financial Liberalisation for Emerging Market Economies

In this speech to the staff of the Reserve Bank of India delivered on May 14, 2007 at the RBI, Central Office, Mumbai, the author offers some comments on the challenges posed by financial liberalisation drawing a comparison with France. The lessons that can be drawn from a comparison with the French experience may seem limited since, in the 1980s, France was facing capital outflows, whereas emerging economies are now often facing speculative capital inflows. However, while the challenge has become more demanding, successful financial liberalisation for EMEs still rests on the same two key conditions that applied to France: Building a resilient domestic financial system while or before opening the capital account; and shaping appropriate institutions and policies.