Capital Account Liberalization is the strategic removal of state regulatory limits, taxes, and quotas on cross-border asset flows, granting international investors the freedom to move capital in and out of a domestic market.

[Strengthen Prudential Supervision] ---> [Deepen Domestic Fixed Income Markets] ---> [Gradually Lift Capital Controls]

Macroprudential supervisors emphasize that liberalization must follow a precise sequence. If a developing nation opens its capital account before strengthening domestic banking supervision and deepening local financial markets, it exposes its financial system to hot-money volatility, cross-border capital flights, and sudden asset bubbles that can trigger systemic currency crises.