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What is Capital Account Convertibility - basics
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What is Capital Account Convertibility - basics There is no formal definition of capital account convertibility (CAC). The Tarapore committee set up by the Reserve Bank of India in 1997 to go into the issue of CAC defined it as the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. In simple language what this means is that CAC allows anyone to freely move from local currency into foreign currency and back. Objective of CAC The ultimate objective of capital account convertibility, however, should be to deepen and integrate financial markets, raise access to global savings, discipline domestic policy makers, and allow greater freedom for individual decision-making. In order to understand why CAC is necessary, it is helpful to take a historical perspective. Relative to world output, global capital flows were much larger before the First World War, and they, along with...
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