Foreign Exchange Regulation Act 1947, Guidelines of Foreign Exchange Transactions

Foreign Exchange Regulation Act 1947, Guidelines of Foreign Exchange Transactions

Sub: Foreign Exchange Regulation Act 1947, Guidelines of Foreign Exchange Transactions, Import Policy, Export Policy, other Govt. notifications, F.E. Circular etc. Importance of knowledge on all such documents.

What is Foreign Exchange?

Foreign exchange is the conversion or exchange of one country's currency into another currency.  Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX." In a free economy, a country's currency is valued according to factors of supply and demand. If we consider 'Foreign Exchange' as a subject, then it means all kinds of transaction related to Foreign Currency, as well as currency Instruments, such as Draft, MT, TT, TC, Payment Order & Foreign Trade.

In other wards Foreign Exchange deals with Foreign Financial Transactions.

Necessity of Foreign Exchange:

No country is self-sufficient in this world. Everyone is more or less dependent on another, for goods or services. Say, Bangladesh has cheap manpower whereas Saudi Arabia has cheap petroleum. So Bangladesh is dependent on Saudi Arabia for petroleum and Saudi Arabia is dependent on Bangladesh for cheap manpower. People of one country are going to another country for Travel, Education and Medical Service etc. One country exports Agricultural commodities, another country exports Industrial products. All these transactions needs Foreign Currency & are related to Foreign Exchange. Own currency is freely transected in the same country but it is not in the case of other country. Some currency has international acceptability, and it is exchangeable in everywhere but all currencies are not.

To transact or exchange of Foreign Currencies there are some different rules in every country. The process for control of these rules of foreign currencies transactions by the central bank is called Exchange Control.     

Objectives of Exchange Control

1.      Protection of Balance of Payments

2.      Reducing Burden of Foreign Debt

3.      Raising the Level of Prices

4.      Elimination of Short-term Fluctuations in Exchange Rate

5.      Prevention of Export of Capital

6.      Economic Planning

7.      Encouragement of Certain Economic Activities.

There is an elaborate machinery to effectively operate the exchange control and regulation in the country. The machinery comprises the authorities empowered to regulate foreign exchange transactions and to enforce the provisions of Foreign Exchange Regulation Act and to deal with any infringements of the provisions. The dealers authorized to deal in foreign exchange under the control system are also important parts of the machinery. Exchange control in Bangladesh is administrated by the Central Bank of Bangladesh. Authorized dealers are allowed to purchase and sell foreign currencies in accordance with the Regulations. The important and vital tools for manage the Exchange Control effectively are given below:

Foreign Exchange Regulation Act 1947:

At the time of Second World War the Great Britain and Germany started to preserve their own currency and they imposed some restrictions on currency movement. After the war some countries did not withdraw the restrictions and keep on the rules of Exchange Control. The restrictions of foreign currency movement at the time of Second World War under the British administration in the Indian sub-continent were passed by Indian Parliament in the year 1947 as Foreign Exchange Regulation Act 1947. The Act enacted on 11^th  March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. This Act was first adapted in Pakistan. In Bangladesh, the Act is reproduced and replaced by Foreign Exchange Regulation Act 1973 (FERA). Bangladesh Bank is responsible for administration of regulations under the Act. Bangladesh Bank’s offices and their jurisdictions provide a list. Basic regulations under the FER Act are issued by the Government as well as by the Bangladesh Bank in the form of Notifications, which are published in the Bangladesh Gazette.

      Guidelines for Foreign Exchange Transaction:

This Publication issued by Bangladesh Bank in the year 1996 titled 'Guidelines for Foreign Exchange Transactions' then revised & summarized in 2009. This is a compilation of the instructions to be followed by the Authorized Dealers & their constituents, Money Changers in transactions relating to foreign exchange. These guidelines come in two volumes. The first volume includes the instructions and the prescribed forms/declarations relating to individual transactions. The second volume describes the procedure of reporting of foreign exchange transactions by Authorized Dealers to Bangladesh Bank, and includes the proformas for monthly returns, statements, schedules for such reporting. Both volumes include instructions as on the 31 May, 2009 and should be read with FE Circulars/Circular Letters issued subsequently.

Import Policy & Export Policy:

The Export and Import Control Act 1950 (Annexure-1) provided the power to the Government to issue Export Policy & Import Policy through Ministry of Commerce as the basic formalities for Import & Export of commodities. And also administer the import and export of Bangladesh under which a three yearly Import policy 2012-2015 and Export Policy 2015-2018 is published. The Import & Export Policy generally guide the overall Import and Export of Bangladesh and help facilitate the exporters and importers.

FE Circular:

Bangladesh Bank issues F.E circular from time to time, to control the Export Import Business & Remittance, to control the Foreign Exchange.

Government Notification:

Government time to time issued notification through CCI&E to inform the people about any kind of change in Foreign Exchange Transaction, about new Act, government decisions, policies passed by the Parliament. These notifications generally lay down the law taking care of some procedural aspects of the enactment.

Instructions from Different Ministry:

Different Ministry of the Govt. sometimes instructs the Authorized Dealer directly or through Bangladesh Bank to follow something required for the Government.

Shariah Principle:

Along with all the above regulations Islamic Bank also bound to follow the Principle of Islamic Shariah in Foreign Exchange.

International Regulations for Foreign Exchange:

There are also some international organizations, influencing our Foreign Exchange transactions. Few of them are discussed bellow.

a. ICC: International Chamber of Commerce is a worldwide Non-Governmental Organization. ICC has issued some publications like ISBP, UCPDC, URC & URR etc. which are being followed by all the member countries. There is also an international Court of Arbitration to solve the international business disputes.

b. W.T.0: World Trade Organization has vital role in International Trade, through its 159 member’s countries.

Authorized Dealers & Money changers:

Meaning: As per section 2 of foreign Exchange Regulation. Act 1947, Authorised Dealer means a person, for the time being authorised under section 3 to deal in Foreign Exchange. In other words Authorized Dealer means a Bank, authorized by Bangladesh Bank to deal in Foreign Exchange under the FER Act 1947. There are some persons or firms, authorized by Bangladesh Bank to deal in Foreign Exchange with limited scope, are called Authorized Money Changers.

License for Authorized Dealer:

To get a License for Authorized dealer, a Bank will apply the General Manager, Foreign Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka complying the following conditions.

1.   The Bank must have adequate manpower trained in Foreign Exchange.

2. Prospect to attract reasonable volume of Foreign Exchange business in the desired location.

3. The Bank meticulously complies with the instruction of Bangladesh Bank.

4. The Bank will commit to deal in Foreign Exchange with in the limit & will submit periodical returns as instructed by Bangladesh Bank.   

Functions of Authorized Dealer:

Authorized Dealer can handle all kinds of Foreign Exchange transaction as per FER Act 1947 under the instruction of Bangladesh Bank. Following are the main function of an Authorized Dealer.

1.   Exchange of Foreign Currencies.

2.   To make arrangement with Foreign Correspondent.

3.   Buying & Selling Foreign Currencies

4.   Handling of Inward & Outward Remittance

5.   Opening of L/C & Settlement of Payment.

6.   Investment in Foreign Trade.

7.   Opening & Maintenance of Accounts with Foreign Banks 'under intimation to Bangladesh Bank.

Importance of Knowledge of Banker:                           

From the above discussion, we got the clear idea that any kind of foreign exchange transactions should happen through any Authorized Dealer bank. As a bank employee of foreign exchange department should have the clear knowledge about the whole procedure and the regulations, latest circulars and Governments notifications regarding Foreign Exchange for smooth and risk free transactions to avoid any unwanted situation. Also need a very sharp knowledge for meet up the Central Bank requirement properly as per guidelines.