Exchange Control

Summary of Exchange Control

The system by which a government regulates possession of and dealings in foreign exchange. The principal objective of exchange control is to allocate foreign exchange to necessary imports and expenditures. Normally, the finance ministry or central bank is invested with the authority to issue licenses for dealings in foreign exchange.

(Main Author: William J. Miller)

Exchange Control in International Trade

Meaning of Exchange Control, according to the Dictionary of International Trade (Global Negotiator): A government policy of regulating access to foreign currency. Typically, countries resort to exchange control because of chronic shortages of foreign currency, particularly the so-called hard (freely convertible) currency. The are several ways governments implement exchange control. Import licensing limits the kind and quantity of products that may be legally imported. A second and often concurrent practice is to restrict foreign currency transactions to the government central bank or selected banks under government supervision. When such measures are imposed, importers must apply for prior authorization from the government to obtain the foreign currency required to bring in designated amounts and types of goods. Since such measures have the effect of restricting imports, they are considered non-tariff barriers to trade.

Hierarchical Display of Exchange control

Finance > Monetary economics > Exchange policy
Finance > Financial institutions and credit > Banking > Law of banking