What are the advantages and disadvantages of foreign exchange control?

Foreign exchange trading

For the foreign exchange market management and control expertise, many investors are not very grasp, so in the actual operation will appear certain errors, harm their own profits. So, what are the pros and cons of foreign exchange control? Let's learn from this article!

(1) Benefits of exchange control

Foreign exchange control originated in the first World War. Since then, after the outbreak of the global financial crisis in 1929-1933, during the "World War II" period and in the early stage after the end of the war, a very large number of countries implemented foreign exchange control, either for the purpose of reducing the contradiction between the balance of payments, or participating countries in order to centralize foreign exchange transactions to cope with war expenses. Since the 1970s, in terms of the overall development trend, capitalist countries, especially the more developed countries, have widely adopted the current policy of slowly liberating foreign exchange control, which has largely eliminated the foreign exchange control of trade income and expenditure.

However, the vast majority of countries still maintain control over non trade income and expenditure, especially for many countries in backward regions. In order to alleviate the contradiction of insufficient foreign exchange funds, strive to realize its own development trend, promote the improvement of industrial layout and the development trend of China's manufacturing, strict foreign exchange control has always been adopted. Because of this, foreign exchange control has its beneficial side.

(2) Disadvantages of foreign exchange control

There are also many disadvantages in foreign exchange control. For a country, if the time constant of keeping the local currency is too high, it will lead to the emergence of the black market foreign exchange market, which will lead to the disorder of the foreign exchange market, as well as the unreasonable social development and the imbalance of resource allocation. Foreign exchange control can not deal with the balance of payments problems in many ways. Instead, it will lead to the increase of administrative expenses and the emergence of bureaucracy and bribery. For the global economy, the disadvantages of foreign exchange control are mainly manifested in the following aspects:

1. Under the foreign exchange control, the interest rate is decided by the government departments, and the supply and demand of foreign exchange transactions will also be severely restricted. Therefore, it is impossible to carry out multilateral cooperation in foreign exchange market, and assets can not be freely circulated, which leads to the collapse and collapse of the international financial system, which is obviously inconsistent with the modernization of production and manufacturing and assets. Moreover, strict foreign exchange control will make it impossible for a country to exchange its currency for other foreign currencies at will. As a result, countries' currencies lack convertibility and are unable to carry out multilateral trade, thus reducing the scope of Global trade.

2. Under the condition of foreign exchange control, the interest rate is usually required by the administrative departments, which will inevitably result in dislocation with the international exchange rate management system. This is not good for the development trend of import and export trade and the creation of all normal international currency relations.

3. To carry out foreign exchange control, there are many kinds of procedures to deal with, increase the cost and raise the cost. It is also very easy to cause foreign exchange smuggling, black market trading and illegal arbitrage of foreign exchange, which makes the foreign exchange market in a state of chaos.

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