In India too, we have opted for a middle solution on the “impossible trinity” whose contours are the following: (i) We let our exchange rate be largely market determined, but intervene in the market to smooth excess volatility and/or to prevent disruptions to macroeconomic stability; (ii) Our capital account is only partly open; while foreigners enjoy mostly unfettered access to our equity markets, access to debt markets is restricted; there are limits to the quantum of funds resident corporates and individuals can take out for investment abroad, but the limits are quite liberal; and (iii) Because of the liberalization on the exchange rate and capital account fronts, some monetary policy independence is forfeited.
There is also the possibility that foreign-owned banks will alter their credit based not on the local conditions, but on the conditions in their home economies.