3. IWOULD LIKE TO EXPRESS MY SPECIAL THANKS AND GRATITUDE TO MS. AFREEN MAAM
AS WELL AS OUR PRINCIPAL MAAM MRS. V PRAKASH WHO GAVE ME THE GOLDEN
OPPORTUNITY TO DO THE ASSIGNMENT ON THE TOPIC EXCHANGE CONTROL.
I CAME TO KNOW ABOUT NEW THINGS BY EXPLORING THE TECHNOLOGY WHICH DOES
NOT ADD UP MY PRESENT KNOWLEDGE BUT ALSO HELP ME TO UNDERSTAND IT BETTER
IN FUTURE.
ACKNOWLEDGEMENT
4. PATICULARS SLIDES
Introduction 4
Definitions 5
Evolution 6
Objectives 7-10
Methods of exchange
control [direct method
and indirect method.]
11-16
CONCLUSION 17
BIBLIOGRAPHY 18
INDEX
5. It is one of the major techniques in the hand of the government to
make exchange rate favorable or to control and regulate the
demand and supply of foreign exchange. It also helps in controlling
international trade and payments.
Exchange control
6. DEFINITIONS
Prof. Haberlor Prof. Ellsworth
State regulation
excluding the free play
of economic forces from
the foreign exchange
market.
Exchange control deals with
the balance of payment
difficulties disregards
market forces and
substitutes for them the
arbitrary decision of the
government officials.
Imports and other payments
are no longer determined
solely by international price
comparisons but also by
consideration of national
needs.
7. The first period of exchange restrictions began in 1931
and lasted till 1939 during which the debtor countries of
europe and latin america restricted payments in terms
of foreign currencies.
The second period was between the years 1945 to 1950
when exchange restrictions all over the world became
common strategy for economic reconstruction.
The third period began in 1950 and the era of exchange
control is still prevailing in many countries.
EVOLUTION
8. Objectives of exchange control
The overall objectives of exchange control is to
stimulate/promote exports and substitute/ reduce
imports.
Stablisation
Undervaluation
9. According to Crowther “ The Objective should be to
prevent those fluctuations of the free market rate
which are purely temporary without intervening with
the change of rate which correspond to real
alteration in the respective values of the different
currencies.”
Stablisation
10. Decreasing the value of the currency then the rate prevailing in the free
exchange market. This is a deliberate method to deal with depression. This
strategy is always adopted by the government so that exports can be
promoted and imports can be discouraged. Undervaluation in the external
value of the currency is always adopted when the country is facing the
situation of depression or there is overproduction of goods with the
decrease I the value of currency, the over produce goods will be attracted
for exports as the quantity has increased with respect to currency value.
UNDERVALUATION
11. METHODS OF
EXCHANGE CONTROL
Through direct method government openly enter into the exchange market and make
use of intervention and restrictions for exchange control. If direct methods are not
able to control the exchange then government methods to adopts the indirect
method also.
A. DIRECT METHODS: THE DIRECT METHODS OF EXCHANGE CONTROL ARE
ADOPTED BY THE CENTRAL BANK WITH THE OBJECT OF RESTRICTING
THE USE AND THE QUANTITY OF FOREIGN EXCHANGE.
12. 1. INTERVENTION:
• IT MEANS THE INVOLVEMENT OF GOVERNMENT IN FOREGIN EXCHANGE
MARKET FOR SALE AND PURCHASE OF HOME CURRENCY SO AS TO
MAINTAIN THE EXTERNAL VALUE OF CURRENCIES.
THE GOVERNMENT OR MONETARY AUTHORITY DIRECTLY INVOLVE IN
PURCHASE AND SALE OF LOCAL CURRENCY IN EXCHANGE OF FOREIGN
CURRENCY AT FIXED RATE.
13. The main two methods
under government
intervention are:
I
A.EXCHANGE PEGGING.
B.EXCHANGE EQUILISATION FUND.
14. 2. EXCHANGE RESTRICTIONS
THE EXCHANGE RESTRICTIONS IS A MORE SEVERE FORM OF EXCHANGE
CONTROL. THE EXCHANGE RESTRICTIONS INCLUDE SUCH POLICIES OR
MEASURES AS ARE DIRECTED TO RESTRICT OR REDUCE COMPULSORILY
THE FLOW OF DOMESTIC CURRENCY IN THE FOREIGN EXCHANGE MARKET.
According to Crowther, [it is a compulsory reduction by the government of
the supply of its currency coming into the market.] The essence of this
type of control is the acquisition by the government or the central bank of
all foreign exchange earnings and receipts and their exchange for
domestic currency.
15. There are certain types of restrictions
usually exchange adopted:
A. BLOCKED ACCOUNTS
B. MULTIPLE EXCHANGE RATES
C. PAYMENT AGGREMENTS
D. CLEARING AGGREMENTS
E. STANDSTILL AGREEMENTS
F. COMPENSATION AGGREMENTS
G. DISCOURAGING CAPITAL EXPORTS UNOFFICIALLY
H. TRANSFER MORATORIA
I. PRIORITY ALLOCATION OF FOREIGN EXCHANGE
16. B.INDIRECT METHODS OF EXCHANGE
CONTROL:
Apart from the direct methods of exchange control, countries sometimes resort to indirect
methods which are as follows:
A. EXPORT SUBSIDIES:
When the government follows the policy of subsidizing exports, the home exporters are
induced to enlarge exports. This measure, on the one hand, can bring about an improvement
in the BOP deficit and, on the other, can raise the external value of home currency.
B. TARRIF AND NON- TARRIF RESTRICTIONS: The countries can resort to tariffs, import quotas
and other quantitative restrictions. These measures reduce the volume of imports and the
demand for foreign currencies gets reduced. That brings about an improvement in the
balance of payments situation. The quantitative restrictions on imports result in
appreciation of home currency relative to the foreign currency.
17. CONCLUSION
There are various forms in which the exchange control system may be devised.
Each form has its own merits and demerits and each one serves a specific purpose.
Therefore, the whole economic situation of foreign trade of a country must be carefully viewed .
While resorting to exchange control and more than one methods must be combined together.
The countries can resort to tariffs, import quotas and other quantitative restrictions. These measures reduce the volume of imports and the demand for foreign currencies gets reduced. That brings about an improvement in the balance of payments situation. The quantitative restrictions on imports result in appreciation of home currency relative to the foreign currency.
