As is known to all, China is one of the countries that implement it, and many countries in the world have regulatory policies and systems.
Today, we are going to talk about the purpose of exchange control.
1. Promoting or improving the balance of payments will have a significant negative impact on a country’s economy in the long run.
Maintaining a balance of international payments is one of the basic objectives of the government.
There are various ways in which governments can adjust their balance of payments, but other adjustments can mean greater costs for developing countries.
For example, the government’s tight fiscal policy may improve the balance of payments, but it will affect the pace of economic growth and worsen unemployment.
2. Stabilizing domestic currency and reducing foreign exchange risks caused by frequent and large exchange rate fluctuations in foreign-related economic activities will seriously hinder a country’s foreign trade and international lending activities.
Countries with large or strong borrowing capacities can use or borrow from reserves to stabilize their exchange rates.
For developing countries lacking foreign exchange reserves, foreign exchange control is an important means to stabilize currency pairs.
3. Prevent capital flight or large-scale speculative capital flows and maintain the stability of national financial markets. Countries with weak economies have many shortcomings that can be used for speculative capital.
For example, when the economy develops rapidly, commodity prices, stock prices and real estate prices tend to rise more than their intrinsic values.
In the absence of exchange controls, this would attract speculative capital inflows, which would greatly exacerbate distortions in price signals.
Once the bubble bursts, speculative capital flight will set off a chain reaction, leading to a rapid deterioration of the economic situation.
Exchange control is an effective means for these countries to maintain the stable operation of financial markets.
4. In order for any country to increase its international reserves, it is necessary to hold a certain amount of international reserve assets. Countries with insufficient international reserves can increase their international reserves in various ways.
Exchange controls help the government achieve its goal of increasing international reserves.
5. Effective use of foreign exchange funds, promote priority development of foreign exchange management in key industries, so that the government has greater control over the use of foreign exchange.
The government can use it to restrict the import of some goods to protect the country’s corresponding infant industries;
Or provide foreign exchange to some industries to support the priority development of key industries.
6. Enhancing the international competitiveness of National products In cases where national enterprises are insufficient to ensure the international competitiveness of their products, the government can use exchange controls to open up foreign markets for enterprises.
For example, setting the official exchange rate is one of the important instruments of exchange control.
When the government directly lowers its currency or limits short-term capital inflows, it helps the country increase exports.
7. Enhance financial security Financial security refers to the ability of a country to resist internal and external financial risks and internal shocks under the condition of financial internationalization.
The greater the degree of openness, the greater the responsibility and pressure on a country to maintain financial security.
Factors affecting financial security include internal factors such as domestic non-performing loans, financial system reform and supervision, as well as foreign factors such as the scale and efficiency of foreign debt and its impact.
The level of economic development in developing countries is low and there are many defects in their economic structure.
In particular, foreign exchange management should be used as a means of enhancing financial security.
The dollar tumbled and oil prices rose to a four-week high as the emergency authorisation of COVID-19 oral drugs returned risk taking sentiment.
Please pay attention to the specific operation, the market is changing rapidly, investment needs to be cautious, the operation strategy is for reference only.
