The classical text book and, now fairly standard, condition precedent to full capital account convertibility is sound, robust and resilient financial system on the one hand, and the broad based convergence of a country on key macroeconomic parameters like inflation, nominal interest rates, current account deficit, gross fiscal deficit and outstanding debt as a percentage of GDP, on the other.
However, significantly the recent financial crisis has thrown into sharp relief, as never before, the critical and important role of “asset price” inflation/asset bubbles also, as opposed to that of shop floor/products/services inflation alone, as a key variable, in monetary policy response.