What is Capital Account
Convertibility(CAC)?
It is the freedom to
convert local financial assets into foreign financial assets and vice versa at
market determined rates of exchange. This means that capital account
convertibility allows anyone to freely move from local currency into foreign
currency and back.
The Reserve Bank of
India has appointed a committee to set out the framework for fuller Capital
Account Convertibility.
Capital account
convertibility is considered to be one of the major features of a developed
economy. It helps attract foreign investment. capital account
convertibility makes it easier for domestic companies to tap foreign markets
My friend told to me that one of the benefits of Capital Accounts convertibility is there would be more and more capital available to the country, and the cost of capital would decline and the spreads of banks and non-bank financial institutions would come down due to growing competition, rendering the financial system more efficient. Anyway, thank you for sharing this very interesting post about capital accounts.
ReplyDeleteBy "Capital Account Convertibility" (or CAC in short), we mean "the freedom to convert the local financial assets into foreign financial assets and vice-versa at market determined the rates of exchange. CAC can coexist with restriction other than no external payments. It doesn't preclude the imposition of any monetary measures relating to forex transactions that may be warrant from a prudential point of view.
ReplyDeleteCapital Accounts Collection