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Are Exchange Controls Coming to the USA?

August 28, 2009 by  

Are Exchange Controls Coming to the USA?

Exchange controls—laws restricting private ownership of, or transactions in, foreign currencies and gold—are blossoming throughout the world. Residents of Cuba, Malaysia, Myanmar, Venezuela and Zimbabwe have long dealt with these restrictions. So have residents of India and China, although the restrictions there aren’t as severe.

But as the ongoing global financial crisis deepens, many other countries have imposed foreign exchange controls in recent months, including Argentina, Iceland and Nigeria. Is it possible that the United States would ever impose these types of controls? The answer may surprise you… but first, let’s explore the history and mechanisms of exchange controls.

Exchange controls date all the way back to ancient Greece. The philosopher Plato proposed an inconvertible currency to prevent anyone outside Athens from interfering with its economic autonomy. And only a few decades ago, exchange controls were common in western countries: France and Great Britain had them in effect until the late 1970s. Indeed, one form of exchange control remains in effect worldwide—no government, anywhere in the world, will redeem its national currency in gold.

Exchange controls take many forms:

  • Prohibiting residents from owning a bank account denominated in another currency or an account in a foreign bank.
  • Banning the use of foreign currency within the country.
  • Banning residents from possessing foreign currency.
  • Prohibiting exporters from drawing against a bank account except for internal transfers.
  • Limiting bank trading in a domestic currency to discourage currency speculation.
  • Restricting the amount of currency that may be imported or exported.
  • Prohibiting residents from owning gold or exporting gold abroad.

Foreign Exchange Controls Step-by-Step

The main reason a government initiates foreign exchange controls is to discourage speculation in its national currency. This helps preserve foreign currency reserves and props up the international value of the national currency. In most cases, the national treasury or central bank of a country that imposes exchange controls has created an excessive amount of money out of thin air. Exchange controls appear to offer the government an opportunity to achieve what would otherwise be economically impossible.

In most cases, governments don’t impose foreign exchange controls overnight, but rather, in a step-by-step process:

Step 1. The first step is already complete, in the form of laws in effect in every country. These laws prohibit citizens (or anyone else) from exchanging their national currency for a fixed quantity of gold through the national treasury or central bank.

Step 2. The second step is to impose rigorous reporting requirements for moving cash into and out of the country, and for foreign accounts. These laws are also in effect in most countries, including the United States, purportedly to fight "money laundering."

Step 3. The third step is to expand the reporting requirements to any transfer of assets in or out of the country, not just in cash or cash equivalents. Many countries have these laws in effect as well. Legislation before the U.S. Congress would impose these requirements in the United States as well.

Step 4. The fourth step is for the national treasury or central bank to assert control over all movements of money into or out of country. Transfers deemed vital to the economy are exempted from this requirement. However, any person or company making "non-vital" transfers must receive permission from the government to make them. After going through whatever approval process exists, the treasury converts the local currency to the international currency, or vice versa, and sends the payment along to its ultimate destination. Generally, the conversion isn’t made at the market rate, but at an artificially high rate set by the government.

Step 5. If these steps don’t succeed in curbing speculation or inflation, the fifth step is to require residents to exchange their holdings in international currencies or gold for holdings in the national currency. This makes it impossible for them to legally protect themselves from any future decline in the international value of their national currency, or from inflation at home.

Why Exchange Controls Don’t Work</p

Unfortunately for the governments that impose them, exchange controls simply don’t work. The longer they’re in place, the more ways clever people find to get around them. To begin with, exchange controls create a huge black market and an accompanying criminal class. This phenomenon is well known in countries with stiff criminal penalties against mind-altering drugs.

Exchange controls also inevitably disrupt legitimate businesses. For instance, Venezuelan exchange controls, re-imposed in 2003, bankrupted thousands of small and middle-sized businesses because they could no longer obtain foreign currency.

Moreover, while Venezuela’s foreign currency reserve position stabilized after it imposed exchange controls, remittances of foreign currency fell dramatically. This led to a steep decline in the standard of living for most residents. Many of Venezuela’s most successful citizens emigrated to other countries, particularly those lucky enough to qualify for another passport, or wealthy enough to purchase one.

Despite the many shortcomings of exchange controls, the historical record is clear. In times of economic crisis, protectionist sentiments grow. Those advocating protectionist measures label anyone with offshore investments or other financial interests as traitors. Foreign exchange controls are a way of dealing with these purportedly disloyal citizens.

In the United States, the dollar has actually appreciated in value in the current economic crisis, so there’s no immediate pressure for Congress—or President Barack Obama—to impose exchange controls. However, Obama has advocated that offshore "tax havens" be shut down. And if investors begin fleeing the dollar, and its value collapses, exchange controls may quickly follow. Indeed, if Congress fails to act, President Obama can impose exchange controls with the stroke of a pen, via an executive order. The enabling legislation is already in place, via the International Economic Emergency Powers Act (IEEPA).

How to Prepare for the Prospect of Exchange Controls

U.S. residents concerned about the prospect for exchange controls in this country need to prepare for them now. The most basic strategy is to open a foreign bank account or to store precious metals at an offshore safekeeping facility.

However, any U.S. exchange controls (in common with those in most other countries) may prohibit U.S. residents from maintaining a foreign account or other foreign investments without a "permit" to do so. Without a permit, the government may force you to repatriate your foreign account in exchange for dollars at the official exchange rate. This rate may be much less than the market exchange rate.

A better strategy may be to create an international structure in which you are not the owner of the underlying investments, but only a beneficiary. An offshore trust and some types of offshore insurance investments provide this sort of protection. Historically, payments from overseas life insurance and annuity policies have been exempt from foreign exchange controls—although there’s no guarantee they would be in the future. An additional benefit is that these structures provide significant protection against claims in civil litigation. (My book The Lifeboat Strategy, contains complete details on how to set up these types of international structures.)

Are foreign exchange controls coming to the United States? I certainly hope not. But if they do, I hope you’ve made arrangements to prepare for their arrival.

By Mark Nestmann
Copyright © 2009 by Mark Nestmann

Mark Nestmann

is president of The Nestmann Group, Ltd., an international consultancy that assists individuals in achieving their wealth preservation goals. He is also Tax and Asset Protection editor for The Sovereign Society and author of The Lifeboat Strategy: Legally Protecting Wealth and Privacy in the 21st Century, and other books and publications. He is a graduate of Denison University and holds a LL.M. (Master of Laws) in international tax law from the Vienna University School of Economics and Business Administration.

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  • DaveH

    Just in case you don’t already know which party most loves control and Big Government, I am going to post roll call votes from bills that have passed this years House of Representatives. I dedicate these posts to Sleepee who wanted me to post from government sites:

  • DaveH

    Note that the bills have such flowery titles. I suggest you read the text of the bill rather than swooing over the title:

  • DaveH

    Here’s one that many Republicans got beat up over. Surprise it wasn’t the Republicans’ fault:

  • DaveH

    If you don’t know how to find the text of these bills, ask and I shall provide you with the link. Hint – They are at same site.
    This one is another of many that keep the lawyers from starving.

    • http://donthaveone Beberoni

      Shoot man, by the time Barack and his band of Chicago thugs are done, there wont be anybody left with any money to do anything. We will all be striving for mediocracy, standing in line with out hands out getting the little handouts to keep us down. Yes, this is the liberal pacifist appeasing think tank of the left.

      • aganadagnu

        Any control/oversight on greed and save haven will be far better than federal taxation and state taxation.

        For example, after paying up my mortgage (NO LONGER WORKING FOR THE BANK) my retirement existence/wellbeing is treatened by property tax, the “american dream” is really a nightmare.

        • DaveH

          Yep, I know how you feel.

  • DaveH

    Can’t have those hate crimes. I suspect this one treads heavily on the Constitution. I will rest much easier knowing that the criminal who kills me for hate will be punished with more taxpayer money. I guess the good side of this is more prisoners getting free room and board, and more employment for prison guards; yeah right:

    • ChuckL

      The only thing that “Hate Crime Legislation” does is create another special class of persons who can file fo damages because of anti-discrimination laws.

  • DaveH

    OK Sleepee,
    I’m worn out for now. But I will be back. Your wish is my command.

    • unclecj

      Who is ‘sleepie;

      • DaveH

        He knows.


    sounds like the old money stash buried in some field isnt such a bad idea after all, this time it should be precious metals to protect thy self

    • DaveH

      Bury it deep, LU. I don’t know how deep metal detectors reach.

  • DaveH

    OK, here’s one for the Liberals who trash the Republicans for passing the Patriot Act. I am going to split these links up as comment will be put on hold for review if I put 2 links in one comment. First is the Senate vote on the Patriot Act. Notice that only two Senators (both Democrat) didn’t vote YEA (hardly a referendum for freedom from the Democratic Party):



    • Rod James

      The way I see it is the Patriot act was developed to get around (replace?) the US constitution.You political junkies still don,t get! The whole system is designed to have certain interests in power no matter how you vote! Politics is the Game/Sideshow that distracts and keeps the public busy thinking they are voting for change when really it’s just the faces and parties that change. Keep marching off and fighting for freedom around the world and freedom at home will be GONE!

      • eyeswideopen

        Well said, Rod.
        Hijacking the Constitution seems to be the motive of Dick Cheney, and we will probably get to see just how much of our Constitution has been subjugated soon.

        • DaveH

          You are relentless, Eyes. There was only one Democrat in the Senate (Diane Feinstein) who voted against the Patriot Act. Why do you give the Dems a free pass on everything?

          • eyeswideopen

            Dave, I agreed with Rod, he was including both parties. I didn’t give any Dem’s a pass. But I am also unhappy that Dick Cheney tried to get the legislative branch to knuckle under to his wishes… I believe in the 3 branches of government, created by our founding fathers to keep us safe from the like of him….. you have a problem with that? If so you need to re-read the book you recommended to me!!

          • eyeswideopen

            WHo authored the Patriot Act? Who was President?, Who had control of Congress (both houses)? If the Dem’s had written it, I would be down their throats, but if we didn’t like it, we repubs could have stopped it..

  • ChuckL

    The big problem here is that almost all of the objections to this Unconstitutional act could have been solved with only 2 lines of text.

    “Nothing in this bill shall be construed to allow the use of information obtained pursuant to this bill to be used in a court of law against any citizen of the United States of America.

    Any information that can be shown to have been possible to obtain under this bill shall be considered to have been obtained under this bill.

    Of course since almost all of the information obtained under the PATRIOT Act could have been legally obtained under existing law, that would have eliminated this law and prevented the use of other information.

  • DaveH

    This bill regulates the petooky out of the Mortgage Industry. But wait; if you read Thomas Sowell’s “Boom and Bust” you will find that government meddling got us into the Mortgage mess. So maybe we need more government meddling? Right:

  • DaveH

    Sorry, I forgot to mention the previous comment and next 3 are a continuation of my response to Sleepee, who said only government sites are valid in my effort to show people who the biggest government builders are (honorable mention goes to the runners-up, the Republicans). I guess the word “green” in this bill’s title refers to the taxpayer money being wasted in an effort by the Federal Government to gain more control over the educational system:

  • DaveH

    More regulations and spending, this time on FAA:

  • DaveH

    This is important. We must protect our government employees. Never mind that the private sector is in a recession:

  • DaveH

    Aren’t these the same people who are all over the Republicans for their defense spending? I guess it’s better if they just give our money away:
    Ok, I’m done (and I haven’t even gotten through the first 6 months).
    Do you want more Sleepee?

  • DaveH

    Win the lottery. Hit the million dollar jackpot at Vegas. Make it big in the stock market. Most of us have these hopes and dreams. The Siren Song of something for nothing is thoroughly ingrained in our psyches. The lust for the easy road is almost irresistible to anyone who is not steeped in the reality of life. And that easy road is what the Liberals pander to.
    The reality is that to make and maintain a nest it takes mostly worker bees. But how do we convince those people whose political views are based on Hopes and Dreams that the only real way for the masses to achieve those dreams is through hard work, sacrifice, innovation, risk-taking, and other factors conducive to productivity? And how do we convince them that the most effective form of protection is that which they do for themselves? After all, if we aren’t willing to make the effort to research those products which we might buy, or screen those people carefully who might provide us a service, or rigorously protect our lives and property from others, do we really think someone else (especially a stranger) is going to make those efforts diligently on our behalf?
    We could perhaps convince those possessing morality that taking property (including money) from others is nothing more than theft, but how do we convince those who don’t have morality or those who have morality but are blinded by their lust for other peoples’ money? I think the answer to that question is to enlighten those people to the fact that there is no such thing as something for nothing. Someone is footing the bill in all cases. And taking from those who are unwilling donors is necessarily going to result in less for all of us, as the unwilling donors are certainly going to produce less if there are no rewards, and the recipients of the largesse are not about to be more productive. Thus, the world is full of impoverished nations whose citizens have succumbed to the promises of something for nothing from their leaders.

  • eyeswideopen

    Dave h. and Smilee
    look at and tell me what you both think. thx . read the whole thing.

  • Dora

    If anybody in the United States can’t SEE that the Democratic Party has been taken over by Socialist/Marxist/Communist – including the President’s seat, they are blind in ONE eye and can’t see out of the other. I suggest that you go to and pull that article “Program of the Communist Party USA” and educate yourself. They are OUT to destroy capitalism in this nation and Obama is well on the way of doing it. On Page 52 of that article it says “To fulfill this role, the Communise Party needs the following characteristics, first in outlook, leading to actual leadership status among the working class and all working people. The Communist Party must be:
    1. a party of the working class, PART of the class but its MOST advanced segment (Government in other words)
    2. a party of SOCIALISM
    3. based on MARXISM-LENINISM
    4. engaged in proletarian INTERNATIOALISM (UN IN CONTROL)
    5. organized on the principle of democratic CENTRALISM (GOVT OWNING everything)
    They will LIE or do anything they have to do to get their agenda passed. WE MUST vote them OUT in 2010.

    • s c

      Dora (and all mothers and fathers in America), be aware that comrade obama is obligated to shelter all manner of human vermin. People like obama have to rely on a wide voting base, and it includes some of the most devious, twisted minds that have ever existed.
      You’ve probably not heard of a group that is waiting for its
      presidential ‘blessing.’ When it is time, they will demand acceptance. They tried it when Bubba Clinton was in the White House, but he wasn’t in a position to ‘help.’
      The name of this group is NAMBLA. If you think comrade obama and his losers are bad now, wait until you do some research into this den of iniquity. As some people say, ‘you ain’t seen nuthin yet.’ Let me know how you think b o will explain and defend that group.

  • s c

    I’d be amazed if this criminal gang doesn’t force exchange controls on us. Such is the mentality of those who would control everyone.What they want to protect is their freedom to pillage wealth. It’s an extension of a central bank approach to money and wealth [ALL WEALTH BELONGS TO YOUR GOVERNMENT!].
    By the way, when a prez dares to ‘appoint’ the head of a private corporation [the Fed], it is a classic example of an unconstitutional breach of authority. This MONOPOLY steals wealth, and destroys it at the same time (I guess a MONOPOLY is ok if those who do it have been ‘blessed’ by government). They’ve been doing it for hundreds of years around the world. So much for integrity, ethics, responsibility, prosperity, compassion, morality, legality, constitutionality, common sense and character.

  • smith

    gt. item! thnx. .
    Direct ownership:
    What about owning outright o’seas houses, an -
    tiques, etc.?
    . . . P. metal coins?
    News says only a few countries now ask if you
    are bring in any ‘precious metal COINS”. . what of a coin
    in plastic case on chain, is it really jewlry?
    . . . (Many areas have old laws on books: cannot bring IN OR OUT
    any nation’s currency of that nation).

  • ben arnold

    re groupers
    ex Minn gov. Ven. tura (Jes) will sue T (ess/and) A
    for invading privacy etc. WHy dont you, A C L . U etc
    also sue in groupers?

  • tom pay ne

    gd site
    comment on status/ use of ‘eye scans, thumb print’ (for
    ppl with no open acct at bk), ‘signature (capture) pads.” etc. thx


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