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Exchange Control

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zeus macatangay

on 11 February 2014

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Transcript of Exchange Control

Exchange Control
(Group 4)
Angelica Macatangay
Angie Gonzales
Kathleen Hernandez
Elaine Jasa
Magboo Mira Vianca
Malabanan Lealie
Arabelle Martinez
Jenny Montejo
Angelica Muega
Nicole Reyes
Mila Rivano

Exchange Control
Eco 3
designed by Péter Puklus for Prezi
Types of controls that governments put in place to ban or restrict the amount of foreign currency or local currency that is allowed to be traded or purchased. Common exchange controls include banning the use of foreign currency and restricting the amount of domestic currency that can be exchanged within the country.
Typically, countries that employ exchange controls are those with weaker economies. These controls allow countries a greater degree of economic stability by limiting the amount of exchange rate volatility due to currency inflows/outflows.

The International Monetary Fund has a provision called article 14, which only allows countries with transitional economies to employ foreign exchange controls.
Article 14, section 2 of IMF
Section 2. Exchange restrictions (ARTICLE 14 COUNTRIES)
A member that has notified the Fund that it intends to avail itself of transitional arrangements under this provision may, notwithstanding the provisions of any other articles of this Agreement, maintain and adapt to changing circumstances the restrictions on payments and transfers for current international transactions that were in effect on the date on which it became a member. Members shall, however, have continuous regard in their foreign exchange policies to the purposes of the Fund, and, as soon as conditions permit, they shall take all possible measures to develop such commercial and financial arrangements with other members as will facilitate international payments and the promotion of a stable system of exchange rates. In particular, members shall withdraw restrictions maintained under this Section as soon as they are satisfied that they will be able, in the absence of such restrictions, to settle their balance of payments in a manner which will not unduly encumber their access to the general resources of the Fund.
Common foreign exchange controls include:
• Banning the use of foreign currency within the country
• Banning locals from possessing foreign currency
• Restricting currency exchange to government-approved exchangers
• Fixed exchange rates
• Restrictions on the amount of currency that may be imported or exported

• Banning the use of foreign currency within the country
It is illegal for any incoming or outgoing passenger to bring in or take out Philippine Pesos in excess of P10,000.00 without prior authority from the Bangko Sentral ng Pilipinas.

Any violation of this rule may lead to the money’s seizure and civil penalties and/or criminal prosecution. (BSP Circular 98-1995)

The transportation of foreign currency or monetary instruments is legal. However, the carrying of foreign currency in excess of US$10,000.00 or its equivalent in other foreign currencies must be declared to a Customs Officer or the Bangko Sentral ng Pilipinas.

Violation of this rule may lead to seizure and sanctions, fines and / or penalties.


• Banning locals from possessing foreign currency
Under the new regulations, foreign money allowed to be purchased by residents without the need for BSP approval was doubled to $120,000 from $60,000. Espenilla said this is to cover “rising costs” in studying abroad, medical bills, or travelling.

-portion of the article entitled "BSP eases foreign exchange rules anew"
By Prinz Magtulis (philstar.com) | Updated April 18, 2013 - 4:14pm
While free enterprise has slowly gained popularity around the world as more and more countries become developed, certain countries still restrict currency exchange to government-approved traders or organizations. The same is true in the United States, as every trader or broker--regardless if they are an individual or an organization--must first register with the NFA (National Futures Association) and the CFTC (Commodity Futures Trading Commission) prior to actively trading on the market. These groups are tied to the federal government and act as a watchdog to ensure that traders follow the rules and regulations of the United States when it comes to FX trades.

Restricting currency exchange to government-approved exchangers
AABs may only engage in foreign exchange forwards and swap transactions with customers if the latter is hedging market risk or covering funding requirements. There shall be no double/multiple hedging such that at any given point in time, the total
notional amount of the foreign exchange derivatives transaction/s shall not exceed the amount of the underlying foreign exchange obligation/exposure.

The customer shall no longer be allowed to buy foreign exchange from AABs or AAB-forex corps for foreign exchange obligations/exposures that are fully covered by deliverable foreign exchange forwards and foreign exchange swaps.
• Fixed exchange rates
At present, the country's exchange rate policy supports a freely floating
exchange rate system whereby the Bangko Sentral ng Pilipinas (BSP)
leaves the determination of the exchange rate to market forces
During its 12 September 2013 meeting, the Monetary Board maintained the BSP's key policy interest rate at 3.50 percent for the overnight borrowing or reverse repurchase (RRP) facility. At the same time, it kept the rate for the overnight lending or repurchase (RP) facility at 5.50 percent. The interest rates on term RRPs, RPs, and special deposit accounts (SDAs) were also left unchanged accordingly. The reserve requirement ratios were maintained as well.
From 1870 to 1914, most countries fixed their currencies to gold; the central banks of these countries conducted exchanges between gold and the local currencies. The gold standard effectively also fixed the exchange rates between different currencies. In the early 1930s, many countries abandoned the gold standard because of financial instabilities and excessive inflation brought on by World War I. A system where the International Monetary Fund (IMF) supervised various fixed exchange rates and adjusted them as necessary prevailed for almost two decades after 1944. The current system involves floating exchange rates that mostly depend on the forces demand and supply.
Restrictions on the amount of currency that may be imported or exported
Every country around the world deals with import and export restrictions. They are most commonly seen attached to the entry and exit requirements for individual countries as to how much cash is allowed to be brought in or taken out without regulation. The actual amount depends on which country you happen to be trading in, but for the United States. $10,000 can be brought into the country and removed without any questions asked or restrictions placed upon it. You can contact local embassy offices for relevant countries to determine the restrictions of a given nation.
• To restrict demand for foreign exchange,
• To give protection to industries,
• To maintain overvalued exchange rates,
• To have independent monetary and fiscal policies,
• To check the flight of capital, and
• To earn revenue.
• Protection of Balance of Payments
• Reducing Burden of Foreign Debt.
• Raising the Level of Prices
• Elimination of Short-term Fluctuations in Exchange Rate.
• Prevention of Export of Capital.
• Economic Planning
• Encouragement of Certain Economic Activities.

Objectives of Exchange Control
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