Official foreign exchange market

Official exchange market

The official foreign exchange market refers to the foreign exchange market controlled by the competent authorities of the host country. Most of the foreign exchange markets of the countries still under foreign exchange control are official foreign exchange markets. However, the official foreign exchange market in some countries is gradually transforming into a free foreign exchange market. Some countries still have strict restrictions on the minimum capital of banks and other financial institutions engaged in foreign exchange business and the maximum amount of each transaction. However, the exchange rate of the currencies that can be traded in the foreign exchange market has been determined by the supply and demand of the market, and the government will no longer have any restrictions, thus turning into a free foreign exchange market controlled by the government.

Main features of the official foreign exchange market

(1) There are restrictions on the qualification of foreign exchange market participants, that is, the control of market access. Generally, only banks and other financial institutions with government licenses are allowed to enter the market to participate in foreign exchange transactions.

(2) There are restrictions on the trading objects in the foreign exchange market, that is, restrictions on the varieties of currencies traded in the market. Generally, only financial institutions entering the market are allowed to trade foreign currency varieties designated by the monetary authority, but not all foreign currency transactions.

(3) Control the exchange rate of the market, and do not allow unlimited fluctuations. The control methods include: implementing fixed exchange rate system, or allowing fluctuation within a certain range.

(4) There are certain restrictions on the use of foreign exchange. Generally, only foreign exchange transactions related to international trade activities are allowed.

(5) There are certain restrictions on the amount of each foreign exchange transaction. Generally, only one quota is approved, or a ceiling is set.