The government action to regulate the payments dealing in foreign exchange and import export of currencies is called exchange control. So any form of official interference of the Govt. to regulate the rate of exchange is called the exchange control. The Central Bank generally controls the foreign exchange and domestic currency can not be freely exchanged for foreign currencies.

Following are the main objectives of Exchange Control.

If a country is facing unfavorable balance of payment, then the central bank adopts the exchange control policy. Foreign exchange may lead to sharp fluctuations in the exchange rate and it is not favorable for the economy. So it is applied to stable the exchange rate.

If government wants to protect any industry from the foreign competition then it can employ exchange control policy and government will not sanction the foreign exchange for the import of those commodities which are produced inside the country.

The less developing countries exchange control policy is used to increase the production. Foreign exchange is used to import the capital goods and technology to improve the economic condition of the country.

This policy is also adopted to save the foreign exchange for the repayment of debt and interest.

Exchange control is used to preserve foreign exchange to face the uncertain situations like war and food shortage problems.

Sometimes due to the fear of nationalization and due to higher rate of interest in foreign countries, capital moves abroad. To check this movement this policy is enforced.

These can also be employed for the substitute of tariffs or to restrict the imports for the protection of home industry.

Every country wants to keep maximum gold reserves, so control policy is adopted to check the flow.

If the government keeps a sufficient amount of foreign exchange reserve, the confidence of the people will increase.