Lord Adair Turner, Chairman, Financial Services Authority, U.K., said that short-term capital flows could under some circumstances be harmful and complex financial innovation in developed countries had produced few demonstrable benefits and resulted in an increased risk of financial instability. The challenge for policymakers is that a more thoughtful analysis provides no simple and universally applicable answers. Liberalisation and increased market liquidity may well be beneficial in some markets but harmful in others, said Lord Turner while delivering the 14th C. D. Deshmukh memorial lecture organised by the Reserve Bank of India here on Monday. He was speaking on “After the crises: assessing the costs and benefits of financial liberalisation”.
Deshmukh was the first Governor of the Reserve Bank of India. He later became the Union Finance Minister. Lord Turner said that John Maynard Keynes’ insight that increased market liquidity can bring disadvantages as well as benefits, needs to be rediscovered. In the aftermath of these crises, it is therefore essential for economists and policymakers to carefully assess the benefits and disadvantages of different categories of financial liberalisation, rejecting the over-simplistic ideology which asserted that limitless liberalisation in all financial markets is always beneficial.
