You can explain much of economics thinking in terms of fashion waves. They just keep coming back and each time the new fashion designers show it as a new look of the town.
This crisis has obviously questioned pre-crisis fashions. Instead we have the post-crisis fashions which is just old wine in new packaging (which isn’t attractive). Capital account convertibility is one such fashion. It was in vogue before crisis and any talk against it was seen as anti-markets. anti -liberal and so on. Post-crisis, thinking has changed and even likes of IMF suggesting capital controls can be used though it should be the last option. From not a choice at all to using it as a last choice is some change by itself.
AV Rajwade writes on the dilemma for emerging markets (he was a member of 1997 Capital Account Committee and 2006 one as well). More interestingly, group of IMF economists suggest Mundell-Fleming model needs to be retweaked to bring this reality. It is the Mundell-Fleming model which has been used by experts to push open their capital accounts.
Actually, much of recent problems around macro today is related to capital flows. People blame advanced country monetary policy over spillovers, search for yields, volatile currency/equity markets and so on. All this is due to rise in capital flows across the world. And capital runs in both the directions seamlessly. That was also the main idea also.
The same people once advocated opening capital accounts in emerging markets strongly. Instead of accepting that they need to rethink on their worldly wisdom, the blame has been pushed to advanced country central banks.
Keep going in circles. Whenever crisis recedes, am sure it will be back to opening capital account…