Exchange Controls: The Path to Economic Recovery in Asia?

Abstract

Exchange controls are regulations that attempt to preserve a country's international reserves by imposing limitations on the convertibility of the national currency or its movement across national frontiers. Exchange controls therefore represent an intermediate regime between total ban and total convertibility of the national currency. Mechanisms to effect exchange controls include restrictions on import financing, terms of payments (such as fixed payment delays for imports and exports), travel spending, and capital flows. For poorer countries, historically the most important traditional objective of exchange controls has been to balance the current account. Exchange controls have also been used as instruments of commercial and industrial policy. For example, the government may subsidize certain types of investments by selling foreign exchange cheaply to selected industrial enterprises that the government is try¬ing to promote, while selling foreign exchange for "luxury" consumption at a higher exchange rate.