Foreign Regulation in India

When trade takes place between the residents of two countries, the two countries being a sovereign state have their own set of regulations and currency. Due to this, problem arises in the conduct of international trade and settlement of the transactions .While the exporter would like to get the payment in the currency of its own country, the importer can pay only in the currency of the importers country. This creates a need for the conversion of the currency of importer’s into that of the exporter’s country. Foreign exchange is the mechanism by which the currency of one country is gets converted into the currency of another country. The conversion is done by banks who deal in foreign exchange.

History of Money:

In recent times, people used to trade with bartering which means the exchange of a good or service for another good or service, a bag of rice for a bag of beans. When Barter system start creating problems, the commodity money system lessen the problem of trade.

Commodity money is money whose value comes from a commodity out of which it is made. It is objects that have value in themselves as well as for use as money. Commodity money still had some problems like, currency was not unified and the quality of currency varied. Some used high-quality grains for currency, which would be a rare occasion. Majority used low-quality commodities, since it has equal amount of purchasing power compared to the same amount of high-quality commodities. This system didn’t solve the problem of trade because of non-standardization. This leads to the development of coinage system which includes metals like copper, silver, and gold. This system solved the problem of trade and gives some standard also. After this era, the most dramatic evolution came in the history of money which was starting of paper currency which was originated representative currency and fiat money. Representative money refers to money that consists of a token or certificate made of paper (legal tender). The use of the various types of money including representative money, tracks the course of money from the past to the present. Gold certificates or Silver certificates are a type of representative money which was used in the United States as currency until 1933. Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat or decree, enforcing legal tender laws, previously known as "forced tender", whereby debtors are legally relieved of the debt if they pay it off in the government's money.

International trade requires an international standard to solve the problem of trade. Before gold standard, it faced many difficulties in trade between two countries. The evolution of gold standard gives a huge boost.