What is shortage of foreign exchange?

A shortage of foreign exchange occurs when a country does not have enough foreign currency reserves to meet its international payment obligations, such as imports, foreign investments, and debt repayments. This situation can lead to difficulties in conducting international trade, causing inflation and economic instability. It may result from factors such as decreased exports, reduced foreign investment, or restrictive monetary policies. To address a foreign exchange shortage, countries may implement measures like currency controls or seeking assistance from international financial institutions.