Richard Kerschagl’s article develops a four-part critique of foreign-exchange control, moving from its economic premises through administrative techniques and their consequences to the conditions for liberalization. Its central argument is that controls conceal and aggravate an imbalance that realistic exchange rates could correct, provided domestic inflation does not continually recreate it. Sustainable liberalization nevertheless requires institutional coordination as well as freer markets.
The opening analysis treats foreign-exchange scarcity as a price disequilibrium rather than an insoluble shortage:
Wie bei jedem anderen Ungleichgewicht wäre ein normaler Ausgleich dieses Ungleichgewichtes durchaus möglich und würde technisch keine Schwierigkeiten bieten.
English translation: As with any other disequilibrium, a normal adjustment of this disequilibrium would be entirely possible and would present no technical difficulties.
Higher foreign-currency prices can restrain demand, while increased exports and reduced imports can restore external balance. Export expansion, however, depends partly on circumstances outside government control. Administrative suppression of exchange rates does not remove these constraints. The claim that realistic rates render exchange control unnecessary therefore presupposes monetary conditions under which those rates remain credible.
The second section explains how departures from realistic rates generate an administrative apparatus:
Um diese Kurse aufrecht zu halten, erfolgt die Anforderung und Zuteilung von Devisen zu diesen unechten Kursen.
English translation: In order to maintain these rates, the requisitioning and allotment of foreign exchange takes place at these spurious rates.
Authorities compel the surrender of foreign exchange and ration its distribution; permission to apply does not establish a right to receive it. Compensation transactions and clearing arrangements reduce the need for direct allocations and may indirectly modify unrealistic rates. Import licensing, capital-transfer restrictions, blocked accounts, and compulsory saving reinforce these barriers by limiting effective demand. Continued inflation makes the system increasingly restrictive.
The third and longest section follows the incentives and evasions produced by these measures. An artificially low price for foreign exchange penalizes exporters and encourages importers, working against the intended restoration of balance. Differentiated rates function like variable import duties and export subsidies. Allowing exporters to retain some proceeds may facilitate a return toward freer rates, but also entangles monetary administration with trade policy. Extending surrender requirements to securities, valuables, and foreign property creates further enforcement problems. Traders may evade compulsory clearing through third countries or compensate for unrealistic rates through invoice prices, transmitting exchange distortions into commodity prices.
Kerschagl distinguishes compulsory from optional clearing, fixed from flexible accounting rates, pooled from individually linked payments, and bilateral from multilateral arrangements. Multilateral clearing economizes on settlement but requires a common accounting unit and sufficiently comparable currencies. Persistent balances still require hard-currency payments, offsets, payment suspensions, or conversion into longer-term obligations. Liberalization can also displace rather than eliminate protection: removing licensing and exchange restrictions may provoke higher tariffs.
Capital restrictions create a related contradiction. Blocking transfers conserves foreign exchange immediately but discourages new lending. Releasing blocked balances through supposedly additional exports may merely redirect existing trade. Credit pressure can induce sales of foreign assets only when stabilization is already credible. Confidence thus links administrative arrangements to their monetary effects.
The final section examines how controls can be dismantled. Reliable allocation may establish substantial practical freedom before formal abolition. Restored transfer rights can attract inflows exceeding the newly permitted outflows; reserves and partial convertibility can support the transition. Yet realistic rates remain vulnerable to domestic instability:
Durch das Ingangsetzen der Preis-Lohn-Spirale werden sie daher immer wieder aufs Neue erschüttert, ebenso wie durch inflatorischen Notendruck zur Deckung des Budget-Defizits.
English translation: By the setting in motion of the price-wage spiral they are therefore shaken again and again anew, just as they are by the inflationary printing of notes to cover the budget deficit.
Liberalization consequently depends on price stability, avoidance of inflationary finance, and disciplined foreign borrowing. Investments financed abroad must generate foreign exchange for repayment, not merely yield a domestic return.
The article closes by giving its price-oriented argument an institutional foundation. Neither monetary automatism nor a return to gold can replace adequate coordination of economic policy. Kerschagl assigns the central bank a coordinating, and potentially directing, role in matters affecting monetary stability. Exchange control emerges as a provisional response to the gap between stabilization requirements and institutional capacities. Its durable removal requires addressing the inflation, distorted incentives, and lack of confidence that made restrictions appear necessary.
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