In this chapter, we look at the problems caused by the fact that there are different currencies in the world and that rates of exchange fluctuate. We first consider the effect of exchange controls.

Exchange controls

More prevalent in the past than they are today, exchange controls are intended to protect foreign-exchange reserves. They normally apply to residents or nationals of the State in question. Although they vary from country to country, they usually make it a criminal offence to make payments in foreign currency anywhere in the world without permission from the relevant national authority; they also require persons who obtain foreign currency to remit it to the country concerned and sell it to the national bank for the national currency. They often prohibit other things as well.

As will be apparent, exchange controls can have a serious effect on international business. They are often invoked by debtors as an excuse for non-payment. What is particularly galling for the creditor is that a person from a foreign country receives goods or services and then says that he cannot pay because the exchange-control regulations of his country forbid it. This can seem like a way of getting something for nothing, since the debtor presumably knew the requirements of his law, while the creditor may have been ignorant of them. What is the law to do?

One of the features of the law in this area is that there is a marked contrast between the attitude of courts towards the exchange-control regulations of their own country and those of other countries.