EXCHANGE RESTRICTIONS
EXCHANGE RESTRICTIONS
Some governments impose various exchange restrictions to control access to foreign exchange. Some of the devices they use are import licensing, multiple exchange rates, import deposit requirements, and quantity controls.
Licensing
Governmental licenses fix the exchange rate by requiring all recipients, exporters, and others who receive foreign exchange to sell it to the central bank
at tne official buying rate. The central bank of a country, which is the institution usually empowered to establish monetary policy, or some other government agency rations the currency it acquires by selling it at fixed rates to
those needing to make payment abroad for goods considered essential. The test of essentiality is made by the government or some agency acting for the government, such as the central bank. An importer may purchase foreign exchange only if that importer has obtained a license for the importation of the goods in question. For example, purchases of raw materials and basic foodstuffs would likely be regarded by the government of a developing country as essential; thus foreign exchange would be sold to importers of these commodities.
In New Zealand, for example, imports were controlled through an Import Licensing Schedule until 1988. However, only about 18 percent of New Zealand's imports were affected by the schedule. In Colombia, imports are subject to one of four different import systems: (1) freely importable goods, requiring only registration; (2) goods subject to prior approval and requiring an import license; (3) goods included in the prohibited import list; and (4) goods requiring special import-export arrangements for their importation.
Multiple Exchange Rates
Another way to conserve foreign exchange is to allow more than one rate of exchange: This is known as a multiple exchange-rate system. Interestingly, multiple exchange-rate arrangements have been rather common. In the 1989 IMF survey on exchange-rate arrangements, 28 countries used more than one exchange rate for imports, 32 used more than one rate for exports, and 35 used a different rate for exports and imports.5 There are several ways to determine a multiple exchange rate, but some countries, such as Jamaica, require a premium or discount on foreign-exchange transactions in specific industries or with specific countries. Therefore, if the government wants to discourage imports, it can establish a very high exchange rate for the transactions it does not favor, thereby making the imports very expensive.
Import Deposit Requirement
Advance import deposits are another form of foreign-exchange control. In 1939 m Colombia, "an advance exchange license deposit had to be lodged at
tne omcial rate f°r exchange certificates at least 20 calendar days prior to an
application for an exchange license. The rate of deposit was 95 percent of the
value of the exchange license."6 According to the 1989 IMF report on ex-
change arrangements, 19 IMF-member countries used advance import deposits of one form or another to force companies to think carefully about the wisdom of importing and to allow the government time to plan its foreign exchange flows.
Quantity Controls
Governments may also limit the amount of exchange for specific purposes, These types of control, called quantity controls, are often used in conjunction with tourism. In Chile, for example, the limit for Chilean tourists going abroad in 1989 was the equivalent of U.S. $1000 per trip for travel to Latin American and Caribbean countries and U.S. $3000 per trip for travel to other countries. For travel by land to adjacent countries, 20 percent of the allowance is provided in the form of foreign exchange, and the rest is provided in money orders.
Some governments impose various exchange restrictions to control access to foreign exchange. Some of the devices they use are import licensing, multiple exchange rates, import deposit requirements, and quantity controls.
Licensing
Governmental licenses fix the exchange rate by requiring all recipients, exporters, and others who receive foreign exchange to sell it to the central bank
at tne official buying rate. The central bank of a country, which is the institution usually empowered to establish monetary policy, or some other government agency rations the currency it acquires by selling it at fixed rates to
those needing to make payment abroad for goods considered essential. The test of essentiality is made by the government or some agency acting for the government, such as the central bank. An importer may purchase foreign exchange only if that importer has obtained a license for the importation of the goods in question. For example, purchases of raw materials and basic foodstuffs would likely be regarded by the government of a developing country as essential; thus foreign exchange would be sold to importers of these commodities.
In New Zealand, for example, imports were controlled through an Import Licensing Schedule until 1988. However, only about 18 percent of New Zealand's imports were affected by the schedule. In Colombia, imports are subject to one of four different import systems: (1) freely importable goods, requiring only registration; (2) goods subject to prior approval and requiring an import license; (3) goods included in the prohibited import list; and (4) goods requiring special import-export arrangements for their importation.
Multiple Exchange Rates
Another way to conserve foreign exchange is to allow more than one rate of exchange: This is known as a multiple exchange-rate system. Interestingly, multiple exchange-rate arrangements have been rather common. In the 1989 IMF survey on exchange-rate arrangements, 28 countries used more than one exchange rate for imports, 32 used more than one rate for exports, and 35 used a different rate for exports and imports.5 There are several ways to determine a multiple exchange rate, but some countries, such as Jamaica, require a premium or discount on foreign-exchange transactions in specific industries or with specific countries. Therefore, if the government wants to discourage imports, it can establish a very high exchange rate for the transactions it does not favor, thereby making the imports very expensive.
Import Deposit Requirement
Advance import deposits are another form of foreign-exchange control. In 1939 m Colombia, "an advance exchange license deposit had to be lodged at
tne omcial rate f°r exchange certificates at least 20 calendar days prior to an
application for an exchange license. The rate of deposit was 95 percent of the
value of the exchange license."6 According to the 1989 IMF report on ex-
change arrangements, 19 IMF-member countries used advance import deposits of one form or another to force companies to think carefully about the wisdom of importing and to allow the government time to plan its foreign exchange flows.
Quantity Controls
Governments may also limit the amount of exchange for specific purposes, These types of control, called quantity controls, are often used in conjunction with tourism. In Chile, for example, the limit for Chilean tourists going abroad in 1989 was the equivalent of U.S. $1000 per trip for travel to Latin American and Caribbean countries and U.S. $3000 per trip for travel to other countries. For travel by land to adjacent countries, 20 percent of the allowance is provided in the form of foreign exchange, and the rest is provided in money orders.
Comments
Post a Comment