Import deposits

Updated: Aug 20, 2021

A system of import restrictions under which importers are required to deposit with a government institution a percentage of the value of their imports. This deposit is held by the government for a period of time, after which it is then repaid to the importer. The system restricts imports because it reduces the liquidity of importers and also imposes an extra charge on them, in as much as they are, in effect, forced to give an interest-free loan to the government. However, the impact of import deposits may be weakened if there is sufficient liquidity generally in the economy to enable importers to obtain loans at favourable rates of interest against the collateral security of their import deposit receipts. Again, foreign exporting companies may be willing to finance the deposits themselves rather than lose their market position, especially if it is expected that the scheme is only a temporary one. The U.K. imposed such a scheme in November 1968. Initially, fifty per cent of the value of imports was required as a deposit on all goods except food and raw materials. The scheme lasted until the beginning of December 1970. U.K. Customs received the deposits and retained them for six months before repaying them, without interest. Italy introduced a temporary deposit scheme in 1981. Importers had to deposit 30 per cent of the value of the commodities they were importing. The deposits were lodged with the central bank for three months without earning a rate of interest.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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