Passage:
While central banks in emerging economies frequently deploy macroprudential capital controls to attenuate volatile cross-border portfolio flows, empirical audits reveal an underlying structural friction. When sovereign debt instruments are denominated in domestic currency but held predominantly by offshore institutional funds, targeted caps on short-term capital inflows shift systemic risk rather than neutralize it. Constrained by domestic foreign-exchange exposure limits, domestic commercial banks frequently utilize shadow hedging mechanisms via offshore non-deliverable forward (NDF) derivative markets. This arbitrage uncouples domestic interest rate signals from domestic credit allocation, as foreign counterparties absorb currency mismatches while demanding higher sovereign risk premiums. Consequently, although macroprudential interventions succeed in dampening nominal balance-of-payments volatility in the short term, they amplify liquidity stress during sudden capital flight by transferring monetary policy transmission to offshore derivative markets beyond regulatory jurisdiction.
Statement: Based strictly on the passage provided above, it can be logically deduced that macroprudential capital controls inevitably fail to diminish nominal balance-of-payments volatility because central bank policy rates lose their efficacy over domestic credit allocation.
Is the statement True or False?
Cevap: Cevap