Unless certain conditions are met, serious misallocation could occur if capital movements are fully liberalized; and considerable vulnerability is created for economies where the exchange rate is strongly influenced by changes in sentiment by owners — residents as well as non–residents — of liquid assets. Countries in this condition — most of them in today's world — may find themselves having to make an uncomfortable choice between tieing their currencies strongly to a major currency, e.g. with a currency board, and maintaining restrictions on capital movements, particularly those that are subject to rapid changes in sentiment and are easily reversible.
Cooper, Richard. "Should Capital Controls Be Banished?" Working Paper 99–09, Weatherhead Center for International Affairs, Harvard University, April 1999.