What Is Blocked Currency?

Blocked currency is money from a country or region that cannot be traded on the foreign exchange market, or Forex. There may be nothing wrong with the money, and it can still be used to settle debts within that country’s or region’s domestic border, but it cannot be traded for other currency types. One reason to impose a blocked currency policy is if the area is experiencing inflation, because trading can cause the currency to drop even lower in strength. If there is a political philosophy that is against capitalism, this is usually another reason for banning currency trade. This typically is imposed by the area’s government, which may force investors to turn to illegal trading.

When an area has a blocked currency policy, this does not mean the currency is useless. It is still used within the area’s domestic limits to settle public and private debts with people, businesses and the government. At the same time, regardless of what citizens want to do, they are legally barred from trading their currency on the Forex. Depending on the area, someone found trading on Forex may be fined or sent to jail.

Inflation can ruin a country’s or region’s strength in terms of currency, and this is one reason to impose a blocked currency policy. Money tends to fluctuate more when an area is involved in Forex and, if the area cannot afford any major fluctuations, then this policy is used to help the currency balance out. Trading also may cause less overall domestic money, because investors typically want to trade for stronger money types, which can worsen the problem.

Some political systems do not believe in capitalism and, for this reason, citizens are not allowed to trade on Forex. This is a matter of political philosophy and not urgency, as with the inflation cause, so the punishment for trading on Forex in this case is usually worse. These countries and regions are typically unwilling to open themselves to Forex trading at all; with inflation, as soon as it subsides the currency is generally unblocked.

Regardless of the reason, a blocked currency policy is forcibly placed on citizens by the country’s or region’s government. For investors that still want to trade on Forex, this can lead to illegal trading. Blocked currency typically is not accepted on Forex, so investors often look for illegal traders that can convert the currency to a type capable of being openly traded.