Forex Trading & Money Advice

Foreign exchange controls are a variety of regulations and controls that a government puts on the sale of foreign currencies. The motivation for imposing forex controls differs but most often has to do with protecting the exchange rate of the home currency against foreign currencies, or to prevent a flight of capital.

Common rules include the banning of the use of a foreign currency inside the country, banning residents from possessing the currency of another country or restricting the exchange of currency to government approved exchanges. However fixing exchange rates and restricting the amount of the home currency that can be imported or exported are the most common types of controls.

The IMF class countries that apply forex controls are known as ‘Article 14 countries’. During the 1990’s most countries dropped their exchange controls and currently only a minority of world economies that are restricted by forex controls.

Economists argue that placing restrictions on foreign exchange causes distortions in international trade and poses hurdles for international trade expansion. However there are certain cases in which economists may argue that placing foreign exchange controls could be beneficial. If a country suddenly experiences a run on its currency instigated by automated forex trading platforms it could sensibly suspend the flotation of its currency for a brief period of time.

Exchange controls have been a political flashpoint recently with one of the main concerns being that China is keeping the Yuan exchange rate fixed to the dollar. Not only does this have an impact on currency trading but it also means that Chinese exports are cheaper than exports from the US which arguably places US manufacturers at a disadvantage.