This article presents material on the work of the foreign exchange market as a branch of the government's financial policy, its role in the economy, the impact on the balance of payments and foreign trade activities in general. The features of currency restrictions in Russia and their connection with the country's trade and payment balance are also reflected.
Foreign exchange market
This concept reveals the practical side of the financial activities of any state. The currency market is the main place for carrying out acts of sale and purchase of securities and currencies. It should be noted that it is subject to the mechanism of supply and demand.
The types of currency markets can be systematized according to certain categorical features: as diffusion (spread), by types of resources, by degree of limitation.
The international currency market includes all world platforms that concentrate large capital, being the main financial environment of international importance. They are connected by stable communication ties. Examples of foreign exchange markets of international importance are Asian, European and American. global financi althe centers are respectively Hong Kong, Tokyo, Melbourne, Singapore, Frankfurt am Main, London, New York, Chicago.
Currency distribution of finance implies compliance with the following principles and rules:
- Accompanying the international movement of capital, goods and services.
- Identification of the exchange rate based on real supply and demand.
- Insurance of credit and currency risks (hedging).
- Implementation of monetary policy.
- Generate profit as the difference between exchange rates and interest rates on debt.
The concept of currency restrictions is associated with the imposition of certain measures to reduce the turnover of funds and conduct transactions in order to support the exchange rate and balance the economy as a whole.
Currency restrictions is a regulation existing at the legislative level in the form of economic, social, organizational and legal measures regarding the circulation, conduct of operations with currencies of national and foreign origin, as well as with values. The implementation of these requirements in practice is ensured by state-authorized persons working in the central bank, customs authorities, large banks.
Reason for restrictions
Currency restrictions are a kind of forced measures on the part of the state aimed at overcoming the negative balance of the country's payment status, stabilizing export-import relations, supporting the nationalcurrencies. The tools to achieve these goals can be a set of measures to reduce the volume of payments and increase revenues, the concentration of resources in the apparatus of state power to solve strategically important state tasks.
Historically, the rules to limit the manipulation of cash, gold and various other currency values have always been implemented by the government apparatus and the main administrative bodies, both at the administrative and legislative levels. At the heart of their aspirations everywhere and everywhere was the goal of stabilizing and effectively conducting international settlement transactions. This contributed to economic stability within the state and the effectiveness of foreign economic activity.
In the long term, the depletion in the process of everyday reserves of funds and gold calls for the introduction of foreign exchange restrictions. Currency control by the state authorities was carried out in capitalist countries mainly during periods of crisis.
Regulated and orderly relations between the state and business entities through money are usually called such restrictions. Subject to existing restrictions, exporting entities are required to provide large commercial banks or authorized state authorities with the proceeds received from transactions in foreign banknotes. Also, in order to reduce capital flight, certain restrictions are introduced on the acquisitioncurrencies of foreign origin and gold reserves, on the export of assets in the form of securities, on export operations.
The first introduction of currency restrictions date back to 1914-1918, that is, during the First World War. In the postwar years they were introduced in a number of capitalist countries. The exceptions for a long time were the United States, Switzerland and the vast majority of Latin American countries, which introduced restrictions on cash transactions later.
In the capitalist and economically developed countries, currency restrictions were introduced in slow progressive motions. At the end of World War II, Western European countries implemented some easing procedures for currency restrictions. So, for example, France allowed the free import of francs from abroad and the free circulation of gold within the country. Also, the rate of free export of the French national currency increased at a rapid pace. Since 1959, the French government has introduced a rule for the equivalent exchange of dollars for francs (for foreigners). Great Britain in the sixties also allowed the exchange of pounds sterling for dollars. Following these actions, the intentions to introduce partial convertibility of national currencies into dollars were made public by the governments of countries such as Germany, Switzerland, Belgium, Italy, and the Netherlands.
Types of restrictions
Currency restrictions are generally divided into the following types:
- Concentration and concentration of foreign exchange transactions incentral bank or authorized (they are also called motto) banks.
- Official permission for foreign exchange transactions.
- Partial or complete deactivation of foreign currency accounts.
- Imposing restrictions on the convertibility of currencies.
Currency restrictions are measures that are to be implemented in such areas as the balance of payments (trade operations), capital and finance (movements of capital and loans, tax payments, loan servicing).
Operations of the current nature of any organization involve the following restrictions on currency turnover:
- Deactivate export revenue.
- Full or partial sale of exporters' proceeds in foreign currency without fail.
- Government-led sales to importers.
- Current regulation on forward operations for the purchase of foreign currency by importers.
- Control of time periods and deadlines for making payments on foreign trade export-import operations.
The forms of restrictions on foreign exchange transactions are directly related to the state of the balance of payments and the direction of state capital.
Establishment of currency restrictions with active and passive balances
With a negative (passive) monetary balance of the country, the government is forced to take all sorts of measures to maintain the exchange rate of the national currency. The tools to achieve this goal are: minimizing the volumeexported capital to foreign markets and, in turn, stimulating the inflow of foreign investment activity.
Specific measures in this case may be as follows:
- banking controls;
- imposition of restrictions on the participation of domestic banks in providing clients with loans in foreign currency;
- control of the activities of the main subjects of the financial market;
- compulsory withdrawal for the purpose of selling securities of foreign origin owned by residents;
- Striving for the maximum repayment of external debt.
In the case of an active balance of payments, it may be necessary to impose restrictions on the import (import) of capital. In such cases, it is strategically important to strengthen the national currency. It also imposes a ban on the sale of securities to non-residents, establishes a restriction on transactions with them and restricts the import of foreign currency from abroad.
Goals of currency restrictions
It is precisely these measures that are an adequate response of the state administrative apparatus to the crisis situation in the domestic money market, which can subsequently lead to an imbalance in foreign economic activity and a negative balance of payments.
In this situation, there is a rapid outflow of gold and foreign exchange reserves to countries that lend to the state.
In this context, currency restrictions are attempts by the state to achieve a balanced balance of payments,balance of economic aggregates, effective conduct of foreign economic activity by reducing payments abroad in the reserve currency and ensuring the growth of receipts in the currency of foreign origin. This, in turn, strongly strengthens the rate of national monetary reserves. With the effective implementation of currency restrictions and currency control, monetary resources are concentrated in the hands of the state authorities, mainly in the Central Bank or in authorized commercial financial institutions.
Mechanism of action
Restrictions on foreign exchange transactions relate mainly to transactions with the import of goods, that is, with imports. The state bodies exercising control over transactions of this kind identify the necessary directions that could be a priority for the movement of the currency. In this scenario, importers have rights to receive, since these funds are necessary to pay for the import operation.
The obligations of exporters include selling at a clearly fixed foreign exchange rate to the main state bank or motto banks. Taking into account the level of deficit, which can be critical for the state, a requirement for exporters can be established at the legislative level, regulating the mandatory sale of a certain percentage of proceeds.
A positive effect in export-import operations can bring the observance of differentiated coefficients of foreign exchange surcharges to the official rate. They can findits application in the process of exchanging proceeds from exporters for domestic currency. For the first time, the multivariability of exchange rates was applicable during the global economic crisis of overproduction in the 30s of the last century. In Germany, for example, at that time deviations from the official rate could be from 10 to 90%.
When the state uses currency restrictions, the movement of capital abroad in a free order is not allowed, which is expressed in a complete or partial ban on the transportation of foreign or national currency.
In total, whatever currency restrictions the state would not use, they are inherently a barrier to successful functioning in a globalized financial system and to integration into the world economic community. Therefore, currency restrictions can be seen as a temporary measure necessary to balance economic stability and increase the importance and role in the foreign market.
Currency restrictions on current operations in Russia
Politics at the present stage are characterized by diverse priority vectors of activity. Currency restrictions in Russia are as follows:
- Full sale of exporters' foreign exchange earnings to the Central Bank without fail.
- Imposition of a ban on the export of goods for the national currency.
- Setting restrictions on the sale of foreign currency to importers
- Regulate the amount of advance payments by importers and establish restrictions on the sale of foreign currency.
- Adjustmenttiming of payments for export-import trade.
Additionally, as part of the implementation of currency restrictions in the Russian Federation, the government also has the right, by attracting and implementing individual instruments, to lower or raise the established exchange rate, depending on the circumstances and the specific situation. It is this right that any state uses in critical situations, and Russia is no exception.