Theoretical Aspects of Foreign – Exchange Policy in developing Countries and countries in transition

Samson Pkhakadze

In Soviet Union there was the single type of foreign exchange policy. It was foreign exchange monopoly.

This policy was totally ignoring all rights that population or companies might have for carrying foreign exchange operations. Foreign trade was totally under control of Soviet government and there wasn’t any permitted foreign exchange operation. In market economy there are couple of reasons that underline the increasing role of foreign exchange policy. First of all, it’s becoming important to develop national foreign exchange systems. The second, as counties are integrating into the international trade and economic system the importance of foreign exchange operations are becoming obvious. Development of national foreign exchange systems in any country comprises of: – creation of internal foreign exchange market; – creation of gold market; – integration into global foreign exchange market; – interaction with world financial organizations (IMF, World Bank, Central banks), etc. In developing countries and countries in transition foreign exchange policy step by step became an integral part of the internal and external economic policy. In modern banking practices in Georgia there is no proper definition of foreign exchange policy. Foreign exchange policy is regarded to be only part of the Monetary and Foreign Exchange Policy that is developed and executed by the National Bank of Georgia. There are different types of foreign exchange policies. Among them are passive, active, defensive and aggressive foreign exchange policies. For the most of the countries foreign exchange policy is a tool for the smooth development of the economy, and guarantee for the effectiveness of the foreign economic policy. There are cases, when countries are trying to solve their own problems by using foreign exchange policies to impose their needs and objectives son other courtiers. In such cases they are applying aggressive foreign exchange policies. The following type of foreign exchange policy is widespread in Georgia: – regulating of currency regime and exchange rates; – foreign exchange interventions; – the management of foreign exchange reserves; We can define couple of methods of foreign exchange policy that are used by developing countries and countries in transition; – regulation of foreign exchange rates through currency regimes ( fixed, floating, etc) or through revaluations or devaluations; – restrictions in currency and capital account movements; – intergovernmental agreements on payment and clearing systems; – Cooperation between countries in the area and foreign exchange policy; creation of currency unions, etc. The objectives of currency regulation are: – paving ground for development of local economy and stimulation of export sector; – increasing the attractiveness of the country in the face of foreign investors; – managing local savings; – insuring the stability of exchange rates; – optimization of export and import structure