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The nature and development of foreign exchange

What is foreign exchange control?


Foreign exchange control: refers to the restrictive measures imposed by a government on foreign exchange in and out to balance the balance of payments and maintain the exchange rate of the national currency. Also known as foreign exchange management in China. An international trade policy that restricts imports by a government that restricts international settlements and foreign exchange transactions through decrees. Foreign exchange control is divided into quantity control and cost control. The former refers to the direct restriction and distribution of the amount of foreign exchange trading by the State Administration of Foreign Exchange, and the purpose of restricting exports by controlling the total amount of foreign exchange; the latter means that the State Administration of Foreign Exchange implements a complex exchange rate system for foreign exchange trading, using the cost of foreign exchange trading. The difference is to regulate the structure of imported goods.

The nature of foreign exchange control

  1. For Western countries, foreign exchange control is a tool for their foreign economic policy.
  2. For developing countries, foreign exchange control is a defensive measure to prevent monopoly capital from invading and safeguarding the economic interests of the country.

Most developing countries are relatively backward, foreign exchange funds are insufficient, the international balance of payments is deteriorating, and the debt burden is heavy. Therefore, foreign exchange control is to stabilize its local currency, ensure the independent development of the national economy, seek balance of international payments, and make limited foreign exchange funds as free. An important tool for outflow.

The emergence and development of foreign exchange control

Foreign exchange controls began during the First World War. At that time, the international monetary system was in a state of collapse. The United States, France, Germany, Italy and other participating countries all experienced huge international balance of payments deficits. The foreign exchange rate of the local currency fluctuated drastically, and a large amount of capital fled. In order to carry out wars on foreign exchange funds, slow down exchange rate fluctuations and prevent domestic capital outflows, the participating countries can celled the free trade of foreign exchange during the war, prohibited gold exports, and implemented foreign exchange controls. During the period of the world economic crisis from 1929 to 1933, many countries that can celled foreign exchange controls after the war re-implemented foreign exchange controls. Some countries that implemented the gold nugget and gold exchange standard system also implemented foreign exchange controls. In 1930, Turkey first introduced foreign exchange controls. In 1932, more than 20 countries including Germany, Italy, Austria, Denmark, and Argentina also implemented foreign exchange controls.

After the outbreak of the Second World War, the participating countries immediately implemented comprehensive and strict foreign exchange controls. In 1940, only 11 of the 100 countries and regions did not formally implement foreign exchange controls, and the scope of foreign exchange control was wider than before. In the early post-war period, Western European countries continued to implement foreign exchange controls based on the prevailing “dollar shortage”. In the late 1950s, the economies of Western European countries recovered and the international balance of payments improved. Since 1958, countries have resumed currency convertibility to varying degrees and lifted foreign exchange controls on international trade balances, but foreign exchange for other projects. The control remains unchanged. In 1961, most of the IMF member states stated that they were obligated under Article 8 of the International Monetary Fund Agreement to avoid foreign exchange restrictions and to implement currency convertibility. However, in the 1990s, most countries still implemented foreign exchange control to varying degrees. Even countries that nominally completely abolished foreign exchange controls often indirectly use non-trade income or non-resident capital account revenues and expenditures.