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Abstract

Although the subject of exchange controls, a substantial part of international monetary law, seems hardly at first glance to be as gripping a matter of international concern as international human rights, the first glance neglects the place of exchange controls in the life blood of developing nations. If, instead of referring to exchange controls, one speaks of the human costs of the international debt crisis, the point is quickly made. Students in a class in international monetary law do see a connection between the outflow of hard currency to repay external debt and the political consequences for a nation that, in order to meet its contractual obligations, must reexport higher and higher proportions of its hard currency earnings. Students then quickly grasp the importance to a developing country of its hard currency export earnings, and come to understand why the multilateral treaty regulating currency exchanges (the Bretton Woods Agreement, sometimes called the "Fund Agreement" because the treaty also provides for establishment of the International Monetary Fund), despite its general hostility to exchange controls, has special provisions authorizing member countries not yet able, because of their stage of development, to move to full convertibility, to keep their panoply of protection for their reserves. Indeed, in a crisis such countries may, with Fund approval, institute a new regime of exchange controls. The Fund Agreement, by its provisions for Fund oversight of exchange controls, insures that these drags on world commerce are only used when necessary (in the Fund's appreciation) to stem serious outflows of hard currency or to ensure that the nation's hard currency earnings are turned over to the central government for allocation in accordance with a plan of protection. Students come to see the importance of this tool to a country's macroeconomic management.

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