Question

South Africa has a series of currency controls in place. What do you believe are the reasons for this? What is the main advantage for South Africa?

Answer 1

The economy of South Africa is the second largest in Africa. Foreign exchange controls are various forms of controls imposed by the government. South African government imposed limitations on the purchase and sale of currencies. The methods of exchange control can be classified into two. They are direct methods and indirect methods.Different methods adopted by the Central bank with the object of restricting the use and the quantity of foreign exchange is called direct method.lt include exchange restriction, exchange clearing agreements and payments agreements.Some times countries are resort to indirect methods. Tarrif and non tarrif restrictions, export subsidies, increase in interest rates are the some of the important indirect methods.Correcting Balance of payments, Maintain an overvalued rate of exchange, policy of differentiation, protect domestic industries, to check economic fluctuations are the some of the important objective of exchange control.Today's exchange rate showട Fifty dollars is equal to 814 rands 03 cents.

lntroducing currency controls, there are so many advantages for South Africa.All foreign exchange operations, the Central bank which administers various foreign exchange regulations. The main adrantages are:

1. Elemination of uncertainty and risk

2. The government exercises full control over the foreign exchange market

3. Attraction of foreign investment

4. Anti inflationary

5. The exporters have to deposit their all foreign exchange earnings with the Central banks

6. Imports of the country are regulated and the importers are allocated foreign exchange at the official rates

7. Adequacy of foreign exchange reserves

Aട the result of exchange control, there is a favourable impact on country's balance of payments. Currency controls allow countries to better manage their economy by controling the inflow and out flow of currency.This helps to create exchange rate volatility.With the help of currency controls, South African economy is the second largest economy in Africa.