Exchange Control

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DEFINITION of 'Exchange Control'

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.

BREAKING DOWN 'Exchange Control'

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.

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