All about Exchange Controls

1. Exchange Controls
Chapter 11

2. • Restrictions are not applied to
goods but to the possibility of
obtaining foreign currency to pay
for them.

3. Need for Exchange Control
• -adopted by govt to conserve the
foreign exchange resources of the
country as well as to control exchange
rates through limitation of the
freedom or monopolization, of foreign
exchange transactions.

4. Exchange Control
• -a complete or partial regulation by
the government covering payments
from one monetary area into all others
and/or the disposition of foreign
exchange receipts and incomes of
residents of the monetary area
concerned.

5. Nature and Scope
• Advantage of covering not only
merchandise transactions as already stated
above but likewise the invisible items of
the balance of payments.

6. Objectives of the ExCon
1. To maintain the exchange rate and avoid the
flight of capital
2. To assure imports of items considered essential
to the country’s well-being.
3. To stimulate the productin of certain goods
deemed vital to the economy
4. To discourage the productin of certain goods.

7. Maintain Exchage Rate
and Avoid Flight of Capital
• Individuals were not permitted to transfer
funds abroad without the permission of the
govt obviously intended to prevent the flight
of capital.- occasioned by the demand for
foreign currency, that is converting domestic
currency into foreign currency which is
considered relatively stable.

8. To Assure imports of
Essential Items
•Policy
•Essential Producer’s goods
•Essential Consumer’s goods

9. To stimulate or discourage the
Production of certain goods.
Adoption of multiple
exchange rates

10. As Source of Revenue
•Difference bet selling rate and
buying rate

11. MECHANISMS OF
EXCHANGE CONTROL
• Compensation clearing agreement
• Payment agreement ,
• Unilateral and non-discriminatory
exchange control.

12. Trade and other Control
Measures
• Quantitative Restrictions
• Import Cost Restriction or Licensing
• Contract bet. residents and non-residents
• Complicated exchange and trade control
formalities and procedures

13. Effects of Exchange Control
1. Contributes to the a reduction of merchandise imports.
2. It usually has the effect of altering a country’s terms of trade.
3. There is generated increasing employment opportunities for members
of the country’s labor force.
4. The industries favored with the grant of lavish amounts of foreign
exchange allocations with which to import the things they need in
their operation are insured.
5. When forex could no longer be obtained with ease as it used to be
when restrictions were totally absent, the salting of foreign exchange
through smuggling as well as undervaluation of exports and
overvaluation of imports become an observed phenomenon.