<p>In general one country cannot just print currency of other country. At least not legally, I suppose some countries could engage in counterfeiting.</p>

<p>A country has to go to foreign exchange market where they purchase the currency of the other country first and then make the transaction in that currency. In practice the foreign exchange market is ‘accessed’ just by making bank transfer where banks converts the money at the current exchange rate, same as you would when you order stuff from other country on internet or when on vacation.</p>

<p>Gold was used in international trade before modern age where gold and silver was kind of an universal currency. The only difference was in the gold and silver content of the coins so once that was accounted for, for all practical purposes, countries were basically in a monetary union - in fact Euro is often compared to gold standard see Eichengreen and Temin’s work on this <a href="http://online.sfsu.edu/jgmoss/PDF/635_pdf/No_86_Fetters-of-Gold-Paper-Eichengreen-Temin.pdf" rel="nofollow noreferrer"> here</a>. But this system is no longer used as it’s impractical to ship gold between countries when floating exchange rates can do the same if not even better job with just paper fiat money.</p>

CC BY-SA 4.0
2020-01-03T06:18:00.270Z
thank you for your answer, I am still unclear, you said: "A country has to go to foreign exchange market where they purchase the currency of the other country first "............. and that's where my question is-- how do they purchase other countries currencies-- using their (X) currency?
RaGa__M
CC BY-SA 4.0
2020-01-03T09:24:02.103Z
@RaGa__M yes the same way as you. For example, if the exchange rate between pound and dollar is 1.5 then with one pound you can buy 1.5 dollars or 100 pounds would buy 150 dollars etc. It’s exactly like you would do it at currency exchange when traveling. If you ever been abroad you must have some experience with it it.
1muflon1
CC BY-SA 4.0
2020-01-03T09:33:52.070Z
then it is just like the country X buys from Y for nothing right? X will just print its money worth of 100$ and exchange it..........  @1muflon1
RaGa__M
CC BY-SA 4.0
2020-01-03T09:59:22.623Z
@RaGa__M it’s not that easy. In principle yes country x could print 100\$ and exchange it but printing money increases inflation and exchange rate depends also on the rate of inflation. Hence there is no way that country X can ‘cheat’ it’s way to some free goodies from abroad just by printing more money. Also it’s not for nothing the foreign country gets to keep your currency which they can then use with trade with your country on convert it with trade with other country. Nowadays all money are just pieces of paper but I would not say that if you sell a car for 1000\$ you are getting nothing
1muflon1
CC BY-SA 4.0
2020-01-03T10:00:44.537Z
Dude. I think you need to edit your comment.
RaGa__M
CC BY-SA 4.0
2020-01-03T10:03:51.890Z
The texts in your comment are garbled .
RaGa__M
CC BY-SA 4.0
2020-01-03T10:09:51.490Z
it would create inflation, only if the money that created being spent on X's economy, what if X destroyed that created money(they own their country  Fed-reserve bank) or just not spending it in the economy-- rather mark it as a record.
RaGa__M
CC BY-SA 4.0
2020-01-03T10:13:47.620Z
If the money was send to foreign country then they cant be just taken out of circulation. Sure, if a country X prints 100\$ and then sends it abroad it can take out another 100\$ from its own circulation but then that has no advantage for a home country as economically that is equivalent to not printing new money and using existing one. I can also imagine that it would be theoretically possible to send some money to foreign country and then undergo a monetary reform rendering the old money worthless but such a country would have hard time finding trading partners...
1muflon1
CC BY-SA 4.0
2020-01-03T11:00:42.077Z
Well the other country doesn't have any way of knowing whether it is a printed one or an existing currencies........does it?
RaGa__M
CC BY-SA 4.0
2020-01-03T12:46:16.920Z
@RaGa__M but it does not matter it’s not like newly printed dollar is different from old dollar. Money is perfectly fungible. When it comes to things as inflation and exchange rate they will change whether or not someone can observe the printing as that is result of real economic interactions. Even if printing is done in secrecy inflation will rise once the money is put into circulation. Only way how inflation or exchange rate would not change would be if the same amount of money is also withdrawn from circulation but then that’s the same as never printing the money in first place
1muflon1
CC BY-SA 4.0
2020-02-03T12:30:20.310Z
Note it is usually not "the country itself", but people within the country. When you buy something online for US$100 and you pay NZ\$154.59, your bank handles the conversion (your bank pays the vendor in US\$ and subtracts the equivalent NZ\$ from your account). If your bank runs low on US\$ (or just if they think they can get a good deal) they will try to buy some US\$ in exchange for NZ\$.
Criticize SE actions means ban
CC BY-SA 4.0
2020-01-02T22:49:11.547Z
2020-01-02T22:55:22.390Z
2020-01-02T22:55:22.390Z
1muflon1
<p>I was thinking about this scenario, where a country X wants to buy some toys (worth of <code>100$</code>) from country Y. both of them have their own currency-- not USD. So, now, how does the exchange happen between X &amp; y?</p>

<p>will the country X print <code>100$</code> equivalent of X's currency and convert that into US Dollars? or will country X exchange gold worth of 100$ to buy those toys from Y?</p>

<p>P.s. If I sound too dumb, its OK, I can handle that, am new to economics &amp; trade.</p>

<international-trade>
How a country buy stuff from other countries? and what is its means of exchange?
RaGa__M
# How a country buy stuff from other countries? and what is its means of exchange?

(Asked by: username_0 on 2020-01-02)

I was thinking about this scenario, where a country X wants to buy some toys (worth of `100$`) from country Y. both of them have their own currency-- not USD. So, now, how does the exchange happen between X & y?

will the country X print `100$` equivalent of X's currency and convert that into US Dollars? or will country X exchange gold worth of 100$ to buy those toys from Y?

P.s. If I sound too dumb, its OK, I can handle that, am new to economics & trade.

**Tags:** international-trade


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## 1 answers

### Answer by username_1 on 2020-01-02. Score: 2

In general one country cannot just print currency of other country. At least not legally, I suppose some countries could engage in counterfeiting.

A country has to go to foreign exchange market where they purchase the currency of the other country first and then make the transaction in that currency. In practice the foreign exchange market is ‘accessed’ just by making bank transfer where banks converts the money at the current exchange rate, same as you would when you order stuff from other country on internet or when on vacation.

Gold was used in international trade before modern age where gold and silver was kind of an universal currency. The only difference was in the gold and silver content of the coins so once that was accounted for, for all practical purposes, countries were basically in a monetary union - in fact Euro is often compared to gold standard see Eichengreen and Temin’s work on this  [here](http://online.sfsu.edu/jgmoss/PDF/635_pdf/No_86_Fetters-of-Gold-Paper-Eichengreen-Temin.pdf). But this system is no longer used as it’s impractical to ship gold between countries when floating exchange rates can do the same if not even better job with just paper fiat money.

> **Comments:**
> **username_0**: thank you for your answer, I am still unclear, you said: "A country has to go to foreign exchange market where they purchase the currency of the other country first "............. and that's where my question is-- how do they purchase other countries currencies-- using their (X) currency?  
> **username_1**: @username_0 yes the same way as you. For example, if the exchange rate between pound and dollar is 1.5 then with one pound you can buy 1.5 dollars or 100 pounds would buy 150 dollars etc. It’s exactly like you would do it at currency exchange when traveling. If you ever been abroad you must have some experience with it it.  
> **username_0**: then it is just like the country X buys from Y for nothing right? X will just print its money worth of 100$ and exchange it..........  @username_1  
> **username_1**: @username_0 it’s not that easy. In principle yes country x could print 100\$ and exchange it but printing money increases inflation and exchange rate depends also on the rate of inflation. Hence there is no way that country X can ‘cheat’ it’s way to some free goodies from abroad just by printing more money. Also it’s not for nothing the foreign country gets to keep your currency which they can then use with trade with your country on convert it with trade with other country. Nowadays all money are just pieces of paper but I would not say that if you sell a car for 1000\$ you are getting nothing  
> **username_0**: Dude. I think you need to edit your comment.  
> **username_0**: The texts in your comment are garbled .  
> **username_0**: it would create inflation, only if the money that created being spent on X's economy, what if X destroyed that created money(they own their country  Fed-reserve bank) or just not spending it in the economy-- rather mark it as a record.  
> **username_1**: If the money was send to foreign country then they cant be just taken out of circulation. Sure, if a country X prints 100\$ and then sends it abroad it can take out another 100\$ from its own circulation but then that has no advantage for a home country as economically that is equivalent to not printing new money and using existing one. I can also imagine that it would be theoretically possible to send some money to foreign country and then undergo a monetary reform rendering the old money worthless but such a country would have hard time finding trading partners...  
> **username_0**: Well the other country doesn't have any way of knowing whether it is a printed one or an existing currencies........does it?  
> **username_1**: @username_0 but it does not matter it’s not like newly printed dollar is different from old dollar. Money is perfectly fungible. When it comes to things as inflation and exchange rate they will change whether or not someone can observe the printing as that is result of real economic interactions. Even if printing is done in secrecy inflation will rise once the money is put into circulation. Only way how inflation or exchange rate would not change would be if the same amount of money is also withdrawn from circulation but then that’s the same as never printing the money in first place  
> **username_2**: Note it is usually not "the country itself", but people within the country. When you buy something online for US$100 and you pay NZ\$154.59, your bank handles the conversion (your bank pays the vendor in US\$ and subtracts the equivalent NZ\$ from your account). If your bank runs low on US\$ (or just if they think they can get a good deal) they will try to buy some US\$ in exchange for NZ\$.  

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