Экономические науки / 2. Внешнеэкономическая деятельность

 

Ruslan Skrynkovskyy

corresponding member of the Ukrainian Academy of Sciences,

member of the Economic Commission of Shevchenko Scientific Society;

National University «Lvivska Polytechnika», Ukraine

Department of Management and International Entrepreneurship

Iuliia Trembetska

Academy of Ground Forces named after Hetman Petro Sahaydachnyi, Ukraine

Department of Foreign Languages and Military Translation

 

CURRENCY POLICY AND ITS MAIN METHODS

 

Set of economic, legal and organizational measures carried out by governmental authorities, central banking and financial institutions, and also international currency and financial institutions in the field of currency relations is called currency policy [1, P. 435]. Main objectives of currency policy are [2, P. 31]: mobilization, distribution and use of currency resources; provision of ongoing international payments; foreign credit inducement, crediting of commercial ties with foreign partners etc.

Currency rate means: 1) a price of monetary unit of national currency expressed in monetary units of other country as at a specific date; 2) correlation between monetary units of various countries. It is a key link between economy of each country and other countries [3, P. 100 – 101; 4, P. 114, 118; 5, P. 341]. Change of currency rates may be based on various factors. General trend may be expressed by the following formula (1) [4, P. 118]:

,                           (1)

where r is a currency rate; S1, S2 mean money stock, national and foreign, respectively; R1, R2 mean gross domestic product (GDP), national and foreign, respectively; D1, D2 mean percentage rate accepted in our country and abroad; F1, F2 mean inflation rate in our country and abroad; Т mean change of export surplus [4, P. 118].

The following methods may be emphasized as exchange-rate adjustment methods by the government [2, P. 31]:

1)      discount-rate policy;

2)      devaluation and revaluation;

3)      foreign currency policy (currency intervention, currency restrictions);

4)      denomination.

Let us consider each of the above-listed methods.

Discount-rate policy 1) system of economic, organizational and legal measures with the use of discount rate (discount) to adjust economic processes (flows of credits, investments, currency relations, etc.); 2) form of monetary and credit policy carried out by central bank by increasing or reducing discount rates to adjust borrowed capital demand and supply, and also influence on inflation rates, external payments position, etc. Increase of official cash rate predicates reduction of credits granted by central bank to commercial banks which leads to reduced currency in circulation, encourages inflow of foreign capital and thus improves country’s balance of payments [3, P. 155 – 156].

Currency devaluation is a legislative drop in currency rate or central parity with fixed currency rate mode. Devaluation of national currency improves conditions for export, creates obstacles for import of goods and encourages demand for domestically manufactured goods.

Revaluation is a process opposite to devaluation; it is officially carried by the government (intergovernmental organization). Main purpose of this currency policy method is to encourage import, inflow of foreign investments and dampening of exports of domestically manufactured goods/services [1, P. 130 – 131, 478; 2, P. 32; 4, P. 119; 5, P. 343 – 344].

Foreign currency policy is a system to adjust currency rate by means of purchase and sale of foreign currency with the help of [1, P. 435]:

-           currency intervention (purchase and sale of currency by currency central bank in order to influence on the national monetary unit rate. It is financed at cost of reserves, loans of international organizations, e.g., the International Monetary Fund (IMF), and central banks, issue of bonds in foreign currency, money emission [3, P. 78]);

-           currency restrictions (a system of rules to govern rights of citizens and legal entities as regards exchange of national currency to foreign currency, currency export or vice versa – its import, other currency operations [2, P. 32]).

International relations practice has developed a ser of principles presented in Article IV of the IMF’s Rules and Regulations “Exchange-Rate Regime Commitments” [6]. They provide for restrictions of member countries, namely [6; 7, P. 158; 8]: 1) independent impositions of any currency restrictions; currency reform (devaluation, revaluation) only with the IMF’s consent; 2) obligatory statement on budget and financial performance of country upon the IMF’s request; 3) failure to perform the IMF’s requirements entails penalty sanctions or overall exclusion from member countries, etc. The same restrictions or some of them are also listed in by-laws of international organizations, like the International Bank for Reconstruction and Development, the International Finance Corporation, the International Development Association.

Reviewed by: T. Protsyuk, Ph.D. in Economics, senior professor at the Department of Economic and Legal Disciplines of the National Academy of Internal Affairs

Скриньковський Р. – член-кореспондент Української академії наук, член економічної комісії Наукового товариства ім. Шевченка; Національний університет “Львівська політехніка” (кафедра менеджменту і міжнародного підприємництва).

Трембецька Ю. – Академія сухопутних військ імені гетьмана Петра Сагайдачного (кафедра іноземних мов та військового перекладу)

 

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