The foreign exchange (FX) market is filled with currencies. Many of them are freely traded and their values change based on supply, demand and other market factors. But there are some exceptions.
Restricted and exotic currencies aren’t as accessible as major currencies, like the US dollar, euro or Great British pound. They are either thinly traded on the FX market or not traded at all.
In this article we’re explaining what restricted and exotic currencies are, why they are limited and how to trade them.
Governments control their currencies in different ways. Some like to apply restrictions that affect how their currency is traded. In extreme cases, governments may ban their money from being traded entirely. This is known as blocking a currency.
Blocked currencies can’t be converted into another currency. They are non-convertible currencies that often belong to nations with unstable economies.
In the past we’ve seen the North Korean won, the Angolan kwanza, and the Chilean peso blocked by their respective governments.
Aside from blocking currencies, nations may ban citizens from exporting their money or make domestic use of foreign currency illegal. Some countries also prohibit citizens from holding assets in other currencies.
On the other side of restrictions, governments may peg their currency against another. This permits trading but limits fluctuations in currency value. Pegging essentially means fixing the value of one currency against a foreign currency.
For example, the Swiss National Bank introduced a peg of 1.20 against the euro in 2011. This meant one Swiss franc was equal 1.20 euros, regardless of market movement.
Read more about this example in: What is forward guidance in FX?
Government control fixes exchange rates giving them an artificial value. It’s unlikely the currency’s value would be the same if it were traded on the free market.
Why do countries restrict currencies?
There are many reasons why a country may restrict its currency. Mainly, it’s to shield their economy from changes in currency value.
Currency fluctuations directly affect the value of a nation’s imports and exports. Large or sudden movements can create trade imbalances and damage economic growth.
By setting their own currency values, governments have more control over their trade balances. On the other hand, preventing people from freely trading foreign currencies may lead to inflation.
Countries may also implement currency restrictions to prevent devaluation, avoid capital flight and limit access to foreigners.
Exotic currencies are limited in how they can be traded in FX markets. They are illiquid assets that lack market depth and are vulnerable to intense volatility.
Typically, they are traded in small volumes and are associated with emerging market or developing countries. These nations tend to have fragile economies which contributes to currency volatility.
Unlike major currencies, exotic currency values can fluctuate severely following changes in political landscape. In contrast, major currency values are determined by economic health and interest rate differentials.
Read more about how interest rates affect currencies: How does inflation affect exchange rates?
Due to their lack of liquidity, exotic currencies are usually expensive to trade. This is because their illiquid nature pushes up the bid-ask spread.
The bid-ask spread refers to the difference between the highest price a buyer is willing to pay for an asset compared to the lowest amount a seller is willing to sell it for.
Restricted currencies map
The list of restricted currencies is never set. Currencies come and go from time to time. The map below shows all the current restricted currencies of the world.
How to trade restricted and exotic currencies
Trading restricted currencies is challenging. As well as costing more money, it takes more time too.
Businesses looking to trade in restricted or exotic currencies may find their usual foreign exchange provider lacks the capability to exchange their currency of choice. With some providers, it can take months to make a transfer.
At Privalgo, our sophisticated network of counterparties and payment routes significantly cuts down the time and costs of purchasing restricted currencies.
By crafting a strategy and selecting the appropriate payment channels, we transform months into days. This not only saves you time but cuts down on transaction fees too.
Request a callback to learn more about Privalgo’s exotic currency capabilities.
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Current list of restricted currencies
Below is the current list of restricted currencies across the world. The trading of these currencies is subject to availability.
Angola | Angolan kwanza | AOA
Armenia | Armenian dram | AMD
Bahamas | Bahamian dollar | BSD
Barbados | Barbadian dollar | BBD
Belize | Belize dollar | BZD
Brazil | Brazilian real | BRL
Cameroon | Central African franc | XAF
Chile | Chilean peso | PHP
China | Chinese yuan | CNY
Cuba | Cuban peso | CUP
Egypt | Egyptian pound | EGP
Ethiopia | Ethiopian birr | ETB
Fiji | Fijian dollar | FJD
Georgia | Georgian lari | GEL
Ghana | Ghanaian cedi | GHS
India | Indian rupee | INR
Indonesia | Indonesian rupiah | IDR
Iran | Iranian rial | IRR
Libya | Libyan dinar | LYD
Malaysia | Malaysian ringgit | MYR
Mauritius | Mauritian rupee | MUR
Morocco | Moroccan dirham | MAD
Myanmar | Burmese kyat | MMK
Namibia | Namibian dollar | NAD
Nepal | Nepalese rupee | NPR
Nigeria | Nigerian naira | NGN
North Korea | North Korean won | KPW
Pakistan | Pakistani rupee | PKR
Papua New Guinea | Papua New Guinean kina | PGK
Philippines | Philippine peso | PHP
Russia | Russian ruble | RUB
Samoa | Samoan tala | WST
Sri Lanka | Sri Lankan rupee | LKR
South Africa | South African rand | ZAR
Sudan | Sudanese pound | SDG
Tunisia | Tunisian dinar | TND
Ukraine | Ukrainian hryvnia | UAH
Uzbekistan | Uzbekistani som | UZS
Venezuela | Venezuela bolivar | VEF