Empirical evidence indicates that the control over outflows from residents is facilitated more by the appropriate tax regime and acceptable exchange rates, than through the control framework. It is necessary to make a distinction between control framework and regulatory framework. An important component of regulatory framework relates to prudential regulation on banks vis-à-vis the external sector.
They may include provisioning requirements for net external positions; limits on open positions, and limits on investments in foreign currency denominated assets. There could also be differentiated tax regimes affecting the maturity pattern. Monetary measures such as reserve requirements have both an external sector and monetary angle.