What are foreign exchange checks?
Some governments impose foreign exchange checks to affect the purchase and sale of currencies. Foreign control checks usually affect local residents who carry out transactions involving foreign currencies and foreign residents that carry out transactions involving local currency. These governments usually try to protect their own weak currencies that people often prefer to exchange for other, stronger currencies.
from 1870 to 1914 most countries fixed their currencies for gold; The central banks of these countries have exchanged between gold and local currencies. The gold standard also effectively set exchange rates between different currencies. In the early thirties, many countries left the gold standard due to financial instability and excessive inflation caused by the World War I. The system where the International Monetary Fund (IMF) supervised various fixed exchange rates and adjusted them for nearly two decades after 1944. The time system includes floating exchange courses.
The government may still decide to impose foreign exchange checks for several reasons: to minimize exchange rate fluctuations, maintain a high or low exchange value, or perform national pride in a stable currency. Governments often impose foreign exchange checks when the currency is weak and faces threats of depreciation. The government could impose foreign exchange controls in several ways. This could reduce the possession or use of foreign currencies in the country by allocating foreign currencies or by storing the currency tax on the currency exchange. It could also control currency exchangers or determine the value of local currency, such as gold or other currency.
When the government sets up foreign exchange controls, it forces the owners of foreign Kurvancies to sell it to the government to obtain a local currency. The government then assigns foreign currencies to choose groups of people. This results in the fact that locals often face difficulty in performing transactions with non -residents.
For example, the Mexican Central Bank imposed foreign exchange checks when Pesoin the 80s. In fact, many people could not use Peso to buy a foreign currency, adversely influencing businesses and investment in Mexico. Mexican businesses could not make transactions with foreign companies and foreign investors decided to risk loss of money by purchasing Peso.
In other words, foreign exchange checks have effects that are similar to import quotas and often lead to economic inefficiency. Governments that deposit them also often have to develop high administrative expenses. Other possible effects include bribery people who want to buy foreign currencies and the establishment of monetary black markets.