Exchange Control Procedure

For purposes of exchange control government designates a central control agency usually the central bank to function as the actual buyer and seller of foreign exchange on government account. Udder those sot comprehensive from of exchange control exporters and other recipients of foreign exchange are not free to dispose of their foreign exchange earning in any manner they like. They are required to surrender al their foreign exchange for local currency. To ensure against evasion export license which certify the delivery of foreign exchange to the exporters must be presented to customs officials before shipment is permitted. This is how the government secures it supply of foreign exchange. The central bank or control agency is in a position to ration its supply of foreign exchange of ray uses that ma central bank takes into account the needs fo the country. Relatively liberal rations of exchange will be allowed for the import of only those goods which are essential to the functioning of the economy such as basic foodstuffs raw materials capital goods etc. while the control agency cnaflatly refuse to release euchre for luxury goods or non- essential commodities.

It should be noted that all systems of exchange control are not necessarily so rigorous. If the balance of payments pressure is not severs controls may involve no more than general supervision of applications received for foreign exchange.

Free exchange market 

When exchange control is not very rigid together with exchange restrictions adopted by the government a free exchange market is also allowed to operate to a limited extent often the central bank releases, in addition to the official exchange in the country a cretin amount of exchange to maintain a free exchange market. All exchange earnings drawn from cretin exports may be allowed to go into the free market where they are sold to the highest idler. Exchange rates in the free market are invariable higher than the official rate for the obvious reason that feeing exchange supply isles then the demand intact free market moreover the exchange control agency may desire the free market rate to be higher than the official exchange rate by a certain percentage so that importers disqualified for official exchange have to pay a premium.

It is obvious that when exchange control exists there is generally a black market in foreign exchange and various methods of evading the control. Foreign currencies or drafts payable in foreign currencies may be smuggled into the country.

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