Currency Exchange And Compensation Transactions On A Non-Currency Basis

Abstract :

Non-Currency transactions and counter trade form an important aspect of international trade in today’s globalized economy. This type of transactions may be both for goods and services. This is an important form of trade from the point of view of developing nations. There can be several forms and variants of non-currency trade and each country follows whichever suits its current economic and social structure. This method of non-currency trade is especially helpful for middle- and low-income countries which lack sufficient fund of hard cash reserves. In politically and economically unstable countries, this form of trade can also help ensure protection from currency exchange rate fluctuations. It also helps avoid inflation since the trade is carried out in goods without the involvement of hard cash.

As the world is becoming more prone to financial turmoils, many less developed and developing countries are resorting to such kind of transactions to avoid financial risks. In this paper, the analysis will be made of the three such forms of exchange in a detailed manner namely Barter deals, Buyback (Compensation) and Direct Compensation (Counter Purchase). Each variant will be studied as per their further classifications, advantages and disadvantages. The study would focus on the mechanism of such transactions, the salient features of such methods of exchange and the need for such a system in today’s world.