Current and Capital Account Convertibility

While internal financial reform policies focus on the liberalization of domestic financial markets, external financial reform policies are concerned mainly with current and capital account convertibility. Current account convertibility permits the free exchange of a country’s currency for foreign currencies to finance international transactions in goods, services, and unrequited transfers. Capital account convertibility refers to the removal of controls on capital movements or the opening of the capital account of the balance of payments. There are, however, interesting relationships between these two types of reform policies, as well as between current and capital account convertibility.