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of high reserve requirements and quantitative restrictions on credit allocation, was a fairly common
practice in the 1960s and 1970s, especially in developing countries. That practice was challenged
initially by Goldsmith [19691 and later by McKinnon [1973] and Shaw [1973], who saw it as being
responsible for low savings, credit rationing and low investment. They dubbed it 'financial repression.'
As an antidote the authors proposed the financial liberalization thesis, which essentially involved
freeing financial markets from government intervention and letting the market determine the price
and allocation of credit. The policy implications of this analysis are quite straightforward: remove
interest rate ceilings, reduce reserve requirements and abolish directed credit programs.