Question

What is meant by exchange controls?

Answer 1

By ordering exporters to sell their foreign exchange profits to the central bank and all importers to purchase foreign exchange from the central bank, the government may attempt to exert total control over all foreign exchange transactions. Only licence holders for specific commodities are allowed to import foreign exchange, which is rationed out among them. Exchange regulations prevent market forces from operating freely. They effectively give the government authority over how foreign exchange is distributed. By selling foreign exchange only to the extent of its export revenues, the government can overcome the balance of payments deficit if its exchange control strategy is successful.