Financialliberalization has become an integral part of the process of globalization ofthe world economy. Answering the question of why developed and developingcountries liberalize their capital accounts, there is a theory of theory ofMilton Friedman, according to which optimal use of capital is possible only ifit can be freely moved across the borders of states. Directed by the desire formaximum profit, world savings should flow into regions offering investors thebest investment prospects. Conversely,borrowers choose those creditors that offer the lowest rate of interest.Capital liberalization can cause a massive influx of foreign capital into thecountry, which can directly or indirectly (through the expansion of statefinancing and bank lending) go to the development of the real sector andthereby contribute to the growth of production, the expansion of consumptionand the welfare of the population. Freedom of capital flows has a significantimpact on the state of financial institutions and markets.
In many cases,a positive consequence of liberalization is the development of more capacious,competitive and diversified financial market. The variety and quality ofservices provided by financial institutions can be enhanced by direct access offoreign financial institutions to the domestic market. Liberalization of theregime opens up the possibility for national investors to further diversifyinvestment portfolios and improve the efficiency of investments. Thus, allcountries benefit from financial liberalization, since the highest growth ratesare combined with the best investments.Moreover, the obviousadvantages of currency liberalization is that the abolition of restrictions onthe movement of capital is one of the conditions for the inflow of directforeign investment and an important source of reducing the cost of attractingcapital, which stimulates innovation, technological progress and theachievement of higher rates of economic growth