IMF and Exchange Contracts

Suppose a Mumbai trader agrees to pay a supplier in London five lakh pounds, and to get the pounds he quietly arranges to hand rupees to someone in Dubai instead of going through an authorised bank. India regulates who may buy and sell foreign currency, and this arrangement breaks that regulation. If the supplier later sues in a court in London, should the English court help him enforce a bargain that Indian exchange rules forbid? The International Monetary Fund's founding treaty has a rule on exactly this, and it is what the syllabus means by exchange contracts.

In two minutes

Exchange contracts raise a conflict-of-laws problem because each country controls its own currency: under the IMF Articles of Agreement, exchange contracts that breach a member's exchange-control rules, made consistently with the Agreement, are unenforceable in the courts of other member countries.

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