Capital account convertibility
Capital account convertibility (CAC) or a floating exchange rate means the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange.
Argument in Favor
It facilitates foreign investments and borrowing. So competition is increased = more factories = more jobs = more product choices for consumers = good for economy.
Argument Against
a) Local producers have to compete with International giants. So they lose market and customers.
b) What if foreigners buy a lot of factories in India and suddenly they find that investing money in France is better than in India. So they immediately sell all those factories, get their Rupees converted into Euro and run away! That’ll lead to huge job loss and collapse in Indian economy cons being the sudden flight of capital and thereby triggering in the recessionary trends and could even lead to depression..creating a similar situation of the Mexican crisis.
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