Objectives of Exchange Control: The exchange control is instituted for the fulfillment of a variety of objectives.

The main objectives are: 1. To Correct an Adverse Balance of Payments. One of the main objectives of the exchange control to be followed by a country is to correct its adverse balance of payments. This objective is achieved by restricting the volume of import to essentials items and according to availability of its reserves. 2. To conserve Foreign Exchange. A country may introduce exchange control for conserving its hard earned foreign exchange. These reserves are restricted for (1) payment of external debt (2) import of essential goods and (3) purchase of defence material. 3. To Protect Home Industry. Exchange control is also employed with the object of protecting home industry. If certain domestic industries are facing stiff competition from abroad and the government desires to protect them from foreign competition, it will not sanction foreign exchange for the import of these commodities. 4. To Stabilize Exchange Rate. A government may introduce exchange control for keeping exchange rate stable. The fluctuations in exchange rate cause disequilibrium in the economy. In order to create confidence and stability in the economic life of the country, the government officially fixes the exchange rate at a predetermined level. 5. To Prevent the Flight of Capital Abroad. Exchange control has also been instituted for checking the flight of capital abroad. If the capital is moving abroad due to depreciation of currency at home, or in response to higher rate of interest in other countries, then the large scale movement of the capital can be checked by the introduction of exchange control. 6. To Practice Discrimination In International Trade. If a country wishes to give concessions or desires to strengthen its trade relation with a country or countries it fixes favorable rates of exchange for them. Exchange control, thus, helps in following the policy of discrimination in international trade. 7. To check the Import of Non-essential Items. Exchange control is also used for restricting the import of non-essential and harmful goods in the country. 8. Source of Income. A government may use exchange control as a. source of income. In the multiple exchange rate system, if the selling rates of foreign exchange are fixed higher than the buying rates, the difference between the two rates goes as income to the state. 9. Important for planning. Exchange control helps in the proper use of foreign

exchange according to the national priorities. 10. Overvaluation. Exchange control is a method of influencing international trade, investment and the payments mechanism. In case a government fixes the value of a currency at a rate higher than the free market rate (overvaluation), it makes the home currency dearer to the foreigners. This policy is adopted when there is a serious imbalance in a countrys balance of payments 11. Undervaluation. Undervaluation or devaluation if adopted makes the currency of a country cheaper for the foreigners. It reduces the prices of exports for the foreigners. and. raises the prices Of imports. This step is taken for promoting exports and discouraging imports.