Foreign exchange controls

Various forms of controls imposed by a government on the purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by nonresidents.

Foreign Exchange Controls

Restrictions on foreign currencies in a country. These controls may range from the basic, such as banning the use of a foreign currency in domestic stores and shops, to the dramatic, such as banning currency conversion. Every country has some foreign exchange controls to protect their currencies, but nations with weak currencies are more likely to impose more controls. See also: Pegged Currency, Crawling Peg.

foreign exchange controls

Restrictions that are imposed by a nation on the free exchange and convertibility of its own currency. Foreign exchange controls are most often instituted by countries whose currencies are weak and whose citizens prefer to hold and use the currencies of other nations. Institution of foreign exchange controls hinders foreign investors who wish to extricate their funds.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

foreign exchange controls

the application of restrictions on the availability of FOREIGN CURRENCIES by a country's central bank, to assist in the removal of a BALANCE OF PAYMENTS deficit and to control disruptive short-run capital inflows and outflows which tend to destabilize the country's EXCHANGE RATE. Because importers need to purchase foreign currencies from the country's central bank (via their commercial banks) in order to buy products from overseas suppliers, by cutting off the supply of foreign currencies the authorities can reduce the amount of IMPORTS to a level compatible with the foreign currency earned by the country's EXPORTS. Exchange controls may be applied not only to limit the total amount of currency available but can also be used to discriminate against particular types of imports, thus serving as a form of PROTECTIONISM. See FOREIGN EXCHANGE MARKET.

foreign exchange controls

restrictions on the availability of FOREIGN CURRENCIES by a country's CENTRAL BANK to assist in the removal of a BALANCE OF PAYMENTS deficit and to control disruptive short-run capital flows (HOT MONEY) that tend to destabilize the country's EXCHANGE RATES. Where importers can only purchase foreign currencies from the country's central bank (via their commercial banks) in order to buy products from overseas suppliers, by cutting off the supply of foreign currencies the authorities can reduce the amount of IMPORTS to a level compatible with the foreign currency earned by the country's EXPORTS. Exchange controls may be applied not only to limit the total amount of currency available but can also be used to discriminate against particular types of imports, thus serving as a form of PROTECTIONISM. See FOREIGN EXCHANGE MARKET.