Currency restrictions as an element of the currency system

Currency restrictions are legislative or administrative prohibition, limitation and regulation of operations of residents and non-residents with currency and other currency values.

The objectives of currency restrictions are:

balance of payments alignment; maintaining the exchange rate; concentration of currency values in the state.

The main principles of currency restrictions are:

centralization of foreign exchange operations in central and authorized (visible) banks; licensing of foreign exchange transactions – the requirement to obtain prior permission from currency control authorities for acquisition by importers and debtors of foreign currency; full or partial blocking of foreign currency accounts; limiting the reversibility of currencies by establishing a differentiated regime for residents and non-residents.

Accordingly distinguish between categories of currency accounts: freely convertible; internal (in national currency with use within the country); under bilateral government agreements; blocked (i.e. official prohibition of freely managing funds in bank accounts to achieve certain economic or political goals).

Currency restrictions are an integral part of currency control, as state measures for supervision, registration, and statistical accounting of foreign exchange transactions.

The negative value of currency restrictions is as follows:

firstly, they violate the unity of the world economy; secondly, they impede the free development of foreign trade; thirdly, they crush the world currency market into more or less isolated foreign exchange spheres. Artificial restrictions on foreign currency payments introduced by some countries impede the export of goods from other countries and encourage them to retaliate.

Often, currency restrictions are combined with one form or another of currency dumping. For example, when the state, setting the official exchange rate, allows allowances to it when central banks purchase foreign currency from exporters, it thereby creates a system of export premiums and stimulates dumping, leading to a further aggravation of competition in the world market.

The forms of currency restrictions on their areas of application are distinguished:

For current balance of payments operations, they act in the following forms: blocking the foreign exchange earnings of foreign exporters from the sale of goods in a given country, limiting their ability to dispose of these funds; compulsory sale of foreign exchange earnings of exporters in whole or in part to central or motto banks; limited sale of foreign currency to importers (if authorized by the currency control authority). In some countries, the importer is required to deposit a certain amount of national currency into the bank to obtain an import license; restriction on forward purchases by importers of foreign currency; prohibition of the sale of goods abroad for national currency; prohibition of payment of import of certain goods by foreign currency; regulation of terms of payments for export and import in conditions of instability of exchange rates.

At the same time, advance payments to foreign exporters are strictly controlled. For example, in Belgium in March 1983, limited terms were set for exporters to sell foreign currency for national (30 days) in order to avoid the use of these funds by speculators against the national currency.

For financial (capital) balance of payments transactions, currency restrictions are in the following forms: With a passive balance of payments, the following measures are applied to limit capital export and stimulate capital inflows to maintain the exchange rate: limiting the export of national and foreign currency, gold, securities, loans; control over the activities of the loan capital market: operations are carried out only with the permission of the Ministry of Finance and when providing information on the amount of loans issued and direct investments abroad; attracting foreign loans subject to prior permission of currency control bodies (in particular, to issue loans) so that they do not adversely affect the national currency market, the loan capital market and the growth of the money supply in circulation; full or partial termination of repayment of external debt or permission to pay it in national currency without the right to transfer abroad. With an active balance of payments, in order to curb capital inflows and increase the national currency, the following forms of currency control in financial (capital) transactions are used: deposit in an interest-free account with the central bank of new foreign liabilities of banks. So, in Germany in 1978, the minimum reserves of credit institutions that they are required to store in the Bundesbank were increased to 100% of the increase in foreign liabilities of banks. In Japan, this norm was increased in March 1978 from 50 to 100% to stop the flow of dollars into the country, and in December 1978 it was reduced to 50% after the announcement of the US dollar support program; a ban on non-resident investments, sales of national securities to foreigners. For example, in Switzerland in 1972-1974 partially, and from February 1978 until the end of 1979, the sale of short-term Swiss securities to non-residents was almost completely prohibited. In January 1978, Germany also banned the sale of national securities to foreigners for a period of 2 to 4 years. In Japan, a ban on the purchase of national securities by non-residents was introduced in March 1978; mandatory conversion of loans in foreign currency at the national central bank (for example, practiced in Switzerland); a ban on the payment of interest on term deposits to foreigners in national currency. Such a ban was in force in Switzerland from November 1974 to February 1980 to redistribute capital from the country to the Euro-French market and reduce the national currency; the introduction of a negative interest rate on deposits of non-residents in national currency (from 12 to 40% per annum).

In this case, interest is paid either by the depositor to the bank, or the bank attracting deposits in foreign currency pays to the state institution – the central bank. This measure was applied in 1972-1979. in Germany, Switzerland, Belgium, the Netherlands to curb the flow of capital from abroad; restriction of currency entry into the country. For the first time, such a measure was introduced in Switzerland in 1976-1977, and in 1979, banking law prohibited banks from storing banknotes in Swiss francs in safes rented by foreigners, and also keep checks for large amounts written in their name by order of foreign customers; restrictions on forward sales of national currency to foreigners. So, in Switzerland, such restrictions were practiced from November 1974 to March 1980: the limit was increased from 20 to 40% for the sale of francs for more than 10 days% of the transaction amount as of October 31, 1974, for transactions for a longer period – from 50 to 80%; use of forced deposits. For example, in Germany from March 1972 to September 1974, firms actively resorted to euro loans, at which interest rates were lower than in the country, they had to place part of the attracted capital on an interest-free account in the central bank of the country – the Bundesbank.

The introduction of currency restrictions is often accompanied by the establishment of a plurality of exchange rates, i.e. the introduction of differentiated exchange rates for various types of operations, product groups and regions. For the first time, the plurality of exchange rates began to apply during the global economic crisis of 1929-1933. after the abolition of the gold standard and the introduction of currency restrictions. At the same time, many currency accounts were blocked, and discounts (discount) in relation to the official exchange rate, for example, in Germany, ranged from 10 to 90%.