List the control devices of Exchange Control
List the control devices of Exchange Control
Friday, June 5, 2020
List the control devices of Exchange Control?
The following devices are used in controlling foreign exchange.
1- EXCHANGE PEGGING As a result of inflation the currency loses its purchasing power. Faced by such a situation, the government tries to keep up the exchange rate of its currency. The maintenance of the exchange rate is cited as exchange pegging.
2- CLEARING AGREEMENT Before making or receiving payments in the foreign exchange the trading countries settle exchange rate, thus preventing its unnecessary fluctuation. This agreement entails such advantages.
1- Imports are regularized and come under a regulated system.
The following devices are used in controlling foreign exchange.
1- EXCHANGE PEGGING As a result of inflation the currency loses its purchasing power. Faced by such a situation, the government tries to keep up the exchange rate of its currency. The maintenance of the exchange rate is cited as exchange pegging.
2- CLEARING AGREEMENT Before making or receiving payments in the foreign exchange the trading countries settle exchange rate, thus preventing its unnecessary fluctuation. This agreement entails such advantages.
1- Imports are regularized and come under a regulated system.
2- Balance of payment is bettered.
3- Exchange rate remains under control.
3- STANDSTILL AGREEMENT Under this method debt servicing of foreign loans is delayed stopping the outflow of foreign exchange. This delay or moratorium help keep up foreign exchange rate. It should be born on mind that the depletion in foreign exchange and gold reserves is one of the main causes of fall in the exchange rate.
4- TRANSFER MORATORIUM This method allows a country to pay off its foreign debts in the local currency. Later, the lender country uses this currency in the borrower’s country.
5- BLOCK ACCOUNT
4- TRANSFER MORATORIUM This method allows a country to pay off its foreign debts in the local currency. Later, the lender country uses this currency in the borrower’s country.
5- BLOCK ACCOUNT
Where the foreign debt servicing is carried out in local currency with the special permission of the government, it refers to as block account.
6- EXCHANGE EQUILIZATION FUND It is a short-term method to achieve stability in the exchange rate. The fund allows allocating some assets which are used to buy foreign exchange when needed in order to keep up the exchange rate at a certain level. The fund is also called an “exchange stability fund”.
7- EXCHANGE RATIONING Because of foreign exchange crunch, the government may be constrained to assume all exchange business in order to save exchange reserves. This method is very risky for economic growth.
8- IMPORT QUOTA To save exchange reserves from depletion, the government may ban imports partially. Importers are required to obtain import license, without which imports are not possible. Such a restriction brings savings in the exchange reserves.
6- EXCHANGE EQUILIZATION FUND It is a short-term method to achieve stability in the exchange rate. The fund allows allocating some assets which are used to buy foreign exchange when needed in order to keep up the exchange rate at a certain level. The fund is also called an “exchange stability fund”.
7- EXCHANGE RATIONING Because of foreign exchange crunch, the government may be constrained to assume all exchange business in order to save exchange reserves. This method is very risky for economic growth.
8- IMPORT QUOTA To save exchange reserves from depletion, the government may ban imports partially. Importers are required to obtain import license, without which imports are not possible. Such a restriction brings savings in the exchange reserves.
9- BANK RATE Bank rate is the one at which a central bank discounts bills of exchange presented by commercial banks. It is the interest rate fixed by the central bank for commercial banks. If the rate is increased the foreign exchange starts flowing in to earn a high rate of interest.
