Foreign exchange restriction
Foreign exchange restrictions are all dirigistic measures taken by a government to regulate payment transactions with foreign countries with the aim of stabilizing the exchange rate , bringing about a balance of payments settlement or preventing currency speculation .
Foreign exchange restrictions require centralized state guidance and control of all foreign trade . While foreign exchange control aims at a complete control of foreign trade, individual measures are referred to as partial foreign exchange control or foreign exchange restrictions.
Scope of terms
Foreign exchange management in the narrower sense exists when residents of foreign currency ( i.e. domestic companies and private individuals) are allowed to conclude foreign trade transactions directly with non-residents , but the acquisition , procurement or use of foreign currency are subject to government scrutiny. With foreign exchange restrictions, a government limits the amount of money in domestic and / or foreign currencies that may flow into the country from abroad or vice versa, and often associates violations of this with criminal consequences. These restrictions range in scope from the complete prohibition of the movement of money or capital to the requirement to obtain approval for individual foreign exchange transactions (partial restrictions). This includes the restriction of the import or export of capital or the possibility of granting residents greater freedom of payment than foreigners (resident convertibility) or vice versa. Such restrictions are dirigistic interventions in the free market economy and suitable for limiting or abolishing the free convertibility of a currency. Reasons are a general lack of foreign exchange and / or the attempt to strive for or maintain an exchange rate that is not in line with the market. Low foreign trade elasticities are more the consequence than the cause of the foreign exchange restrictions.
Fixed exchange rates
In an exchange rate system with fixed exchange rates, there is a fundamental need to defend the fixed exchange rates against market fluctuations. For this purpose, the central banks undertake foreign exchange market interventions when the upper or lower intervention points are reached and sell / buy the currencies concerned in order to restore the fixed exchange rates with the help of these interventions. If the market prices deviate too far or permanently from the fixed exchange rates or if the foreign exchange reserves of the central banks involved are insufficient, foreign exchange restrictions are the only way to maintain the fixed exchange rates.
The import of foreign sorts and the export of own sorts as well as precious metals - especially platinum , gold and silver - will be restricted in this case and the violation of this restriction will be prosecuted as a foreign exchange offense. For this reason, at the time of the gold standard, there were legal restrictions on foreign trade in gold in all countries . These legal trade restrictions for gold also had the purpose of stabilizing the fixed gold price of 35 US dollars per troy ounce - also a fixed exchange rate; these restrictions on trade in gold were an early form of foreign exchange restrictions.
history
Foreign exchange restrictions are typical for weak currency countries because they see restrictions on foreign exchange as an appropriate tool for securing their currency.
Foreign exchange restrictions since the Great Depression
Many states, including Great Britain, France and the German Empire, have introduced extensive foreign exchange restrictions since the Great Depression. In 1932, under the Brüning government, the German Reich began to restrict the free movement of foreign currency, sorts and precious metals through emergency decrees. The emergency ordinance of August 1, 1932 RGBl was particularly influential. 421. The Reichsbank and the foreign exchange investigation offices appointed by it were entrusted with the implementation of the ordinance. From 1938, foreign exchange protection commands were also used. See also registered marks , blocked marks and Thousand Mark Lock .
Foreign exchange restrictions in the Eastern bloc
All members of the Council for Mutual Economic Aid ("Eastern Bloc countries") had introduced extensive restrictions on the movement of money and capital from 1949 in order to limit the free exchange of their currencies and, moreover, the movement of goods and capital. The socialist states of Eastern Europe had a chronic currency shortage until the fall of 1989 . Since the exchange rates were not changed, foreign exchange restrictions to prevent the outflow of foreign currency were the result. In the socialist countries the free exchange of the respective currencies was forbidden. In the case of the GDR , the official exchange rate between DM and Ostmark was 1: 1. A black market emerged on which the Ostmark was traded at a ratio of 5: 1 to the DM. The law regulating internal German payment transactions in the GDR regulated foreign exchange restrictions. It was also used as a means of political repression against opposition leaders who were accused of owning Westmark as a criminal offense with draconian punishments.
The compulsory exchange was also effective in connection with the existing foreign exchange restrictions. The exchanged GDR mark was not allowed to be exported or to be exchanged for DM.
Foreign exchange restrictions in other countries
These restrictions were permanent, while other states had resorted to the temporary use of foreign exchange restrictions. There were also restrictions in Germany. In the context of the global economic crisis, capital flight and the outflow of gold were initially controlled in 1931; after the Second World War , foreign convertibility existed until 1958. With the so-called cash deposit law in 1972, a partial and temporary restriction on capital movements was installed.
Even in modern times, restrictions on foreign trade are seen as an effective means. In Japan (1998) and Thailand (2006), for example, the last temporary restrictions on foreign exchange were lifted. Restrictions on the international movement of money and capital provoke circumvention transactions, as the example of the cash deposit in Germany shows, because the relevant laws cannot regulate all conceivable issues and are therefore necessarily incomplete.
Promoting world trade
Foreign exchange restrictions represent an obstacle to trade in free exchange rates and contradict the provisions of the General Agreement on Tariffs and Trade .
Foreign exchange controls are generally the exception in international trade. The aim of the International Monetary Fund is, among other things, to promote world trade, which also serves to maintain orderly exchange rate relationships and to dismantle foreign exchange restrictions. The European Union also adopts this principle , because in Article 56 (1) of the EC Treaty (“Nice Treaty”), the free movement of capital is formulated as follows, identical to Article 63 (1) of the TFEU (“Lisbon Treaty”): “ Within the framework of the The provisions of this chapter prohibit all restrictions on the movement of capital between Member States and between Member States and third countries. “This regulation is interpreted as an obligation to liberalize capital movements, ie also to deregulate the financial markets. A duty that applies not only within the EU but also to third countries. The prohibition therefore affects all legal measures of the EU member states that are aimed at a partial or total restriction of capital movements within the EU and towards third countries. Trade restrictions - which are not directly part of the currency controls - cannot, however, be subsumed under this provision.
Transfer stop
The transfer freeze is an essential sub-measure of governments within the foreign exchange management. This transfer stop risk in turn represents a specific part of the country risk for foreign creditors. Foreign creditors of state governments or resident debtors in these countries are exposed to the transfer stop risk if a foreign government and / or central bank
- unable (economic risk) and / or
- unwilling (political risk)
is to procure the foreign currency required to repay foreign currency liabilities or not to use existing foreign currency for repayment.
The transfer stop risk in this form affects the foreign exchange liabilities of a state or its residents, because the stock of foreign exchange is very limited, especially in weak currency countries, and would be further consumed by servicing the foreign currency liabilities. However, liabilities in its own local currency can also be affected by the transfer stop risk, although it should initially be assumed that a state can create unlimited currency volumes of its own through its central bank at any time (“set money printing machine in motion”). Apart from harmful inflationary and other economic consequences, however, it cannot be ruled out that the central bank is not prepared to do so, which would materialize the political risk.
The result is that all claims against states or their residents are exposed to a transfer stop risk. In order to enable exports to regions that are particularly at risk from the transfer stop risk or generally from foreign exchange control, export credit insurers offer protection against such risks.
Individual evidence
- ^ Willi Albers: Concise dictionary of economics . 1978, p. 159.
- ^ Willi Albers: Concise dictionary of economics . 1978, p. 160.
- ↑ Ulrich Falk, Gerd Bender: Law in Socialism . 1999, ISBN 3-465-02796-5 , p. 135.
- ↑ a 100% minimum reserve requirement (= prohibition) for foreign balances in foreign currency deposited with German banks at the Deutsche Bundesbank: laugh at everyone . In: Der Spiegel . No. 51 , 1972 ( online ).
- ↑ However, trading can also be indirectly affected by currency restrictions