What is the real story of the American dollar vs. Indian rupee?

The Facebook post referred in the question is stupid. In general, avoid learning stuff from what is being shared on Facebook. India doesn't have a gold backed currency. That means if you go to the RBI and ask for gold in return for the note they printed, they will not give any. Same in the case of US and elsewhere in the world. Next, this "buy only Indian stuff" is stupid and an outdated idea that we practiced until the 1990s. Our economy started growing only after we started throwing out these idiotic economic policies. This is called https://en.wikipedia.org/wiki/Protectionism.If Indians block foreign products then foreigners would block Indian products too. Any gain from reducing imports will be more than destroyed by reducing exports. Rather than reducing imports & exports, we should be looking to increase them both, probably 10 times from our present levels.If you want to help the entrepreneurs, make it easy for people to run businesses. Provide them easy access to reliable electricity, make it easy to file forms online and make taxation both simple & low. Those would help Indian companies more than any protectionist crap. India's consumers need access to the best products at the cheapest rates. That would come only when the best companies in the world compete with the Indian ones. If it doesn't happen, we will go back to the 1970s & 80s, when you could buy only Indian stuff, coke was banned etc. Ask your parents how brutal that period was for getting jobs or buying even basic things like scooter and telephone.

I have fully read the explanation. I will try to answer your question. Promise to pay is a promissory note (called technically as 'bank notes'). Qualitatively it is not much different to a a debt document. The promise on INR is not "to pay in terms of gold." It is printed on higher denomination notes. One rupee note and coins of 50 paise, and coins of rupees 1,2 5 and 10  are the only legal tender in India. So the promise is to pay in one rupee notes or in coins. The coins are supposed to have intrinsic value of the amount equivalent to its denomination. The one rupee notes and all coins are issued by Government of India. All other notes are issued by Reserve Bank Of India. The bank notes become legal tender vide section 2 of the RBI Act. These notes are also guaranteed by Central Government. Central banks of all countries build up gold reserves as store of value. As of December 2013, RBI had Gold reserve of 557 tonnes whereas Federal Bank of USA had 8133 tonnes. In neither country the issue of currency is linked to gold reserves. Indian rupee is not accepted as legal tender in many other countries US$ is accepted in many countries as valid money for making payments. India' trade  with Iran, Nepal and Russia are in INR.India also pays bills for its imports from other countries in their currency like Japaneses Yen, German Mark etc. However India's major import is of Oil and Gold for which payments are made using US$. It is true that oil exporting countries insist on payment in US$. After introduction of Euro, unsuccessful efforts were made to transfer oil trade to that currency. India's foreign trade in US$ per year is..... Imports $ 500 billion, Exports $ 400 billion. Thus there is a annual shortfall of $100 billion on current account. If this is met by net receipts  on capital account ( meaning FDI, FC aids, Long term Loans in FC) then there is equilibrium in demand and supply of US$. In case the receipts fall short of demand, rupee depreciates. Conversely, if there is excess of supply over demand for US$, rupee appreciates. In short term RBI can keep the Rupee/$ rate range bound by selling $ from its reserve or buying $ and increasing its FC reserve. It is true that if we are able to reduce imports of Oil and Gold or increase exports or do both, rupee will appreciate. 1 $ was equal to INR 8.00 in 1973. Theoretically, Exchange rate between two currencies in long run is governed by their respective purchasing power. In simpler words, if 1 kg. of rice is sold for 1 $ in America and Rupees 50 in India, the exchange rate of these two currencies will be 1$ = INR 50. Therefore inflation rate in these countries become relevant in the long run. Inflation rate in America is less than 2% whereas it is more than 8% in India. I hope this has helped you. I will try to answer any further queries, if any.

Exchange rate is a poor measure of economic development. Look at Japan and Korea. Their currencies are falling against dollar for quite awhile. Yet those economies developed. No currency is redeemable in gold or anything. Dollar and Rupee are no exceptions. The falling Rupee vis a vis dollar between 2008 and 2013 means that investors put more faith in Dollar cash than any other currency. Especially  Rupee. Moreover, buying everything made in India is not of much use to strengthen the economy. Those foreign companies the post speaks of have Indian partners. They make money too.

The real story is India's imports are far beyond your exports. You have to pay other countries for your imports in a currency which is acceptable to them. They will not accept Indian Rupees. Whether you like it or not, globally they are prepared to accept usd. When your imports year after year for oil or gold keeps on increasing more than your exports and other receipts you are left with no choice but to bridge that gap known as balance of trade and balance of payments, value of local currency will keep diminishing. Instead of barbaric ideology,  we should focus on finding sources of indigenous energy to cut down imports of oil and culturally change in avoiding gold imports. This will itself will boost value of INR. Simultaneously if we could boost our value added exports, INR will get a honorable place in the global economy.  For your information,  both USD and INR are not backed by gold.

The prime factor for USA's domination is its currency US dollar. That worthless paper which drives the entire world crazy. 1971, the biggest conman of the World the then US president RICHARD NIXON cancelled the gold standard prior to that, 1 ounce of gold (28gms) = $35, the FED (like our RBI) should give 1 ounce of Gold if an individual gives $35. There are no gold standard currency today. All are papers with nothing to back their value. So??? How is 1 paper more valuable than the other??? (1 USD = Rs61). US' public debt today stands at $18.5 trillion. What US does with its military bases all over the world it dictates the entire world to trade in DOLLARS. And it also constantly prints and circulates USD in the world market , this is the prime reason why US always spends more than its income , i.e it maintains a trade deficit. So it gives USD for the entire world's transaction. US can clear of its debt anytime na , it just need to print more Dollars rite.? No, US can scrap its debt by 2 ways 1.Maintain trade surplus like China. 2.Just print more Dollars. 1st case if it maintains trade surplus eventually all th USD's will be stockpiled with FED it will cease to be a universal currency. 2nd case printing $18.5 trillion will cause USD worth much much much much less than Indian rupee. SO??? With no gold standard the US public Debt is the one which gives a statutory backing for USD today.. And if Obama comes and gives a speech about reducing Public Debt, he is making the entire world dumb . And unlike that facebook story. It ain't pegged with petrol that director's view is as shitty as his movies.

Amazing discussion on Currency and money by https://www.youtube.com/user/whygoldandsilver.. it surely answered a few of similar questions I had. Amazing way to learn how once currency was backed by Gold. Episode 3 is amazing as it explains how dollar is being refused and other commodities are considered for trade

An Advice to all who are worrying about fall of Indian Rupee Throughout the country please stop using cars except for emergency for only seven days (Just 7 days) Definitely Dollar rate will come down. This is true. The value to dollar  is given by petrol only.This is called Derivative Trading. America has  stopped valuing its Dollar with Gold 70 years ago. Real story of American Dollar v/s Indian Rupee http://... Americans understood that Petrol is equally valuable as Gold so they  made Agreement with all the Middle East countries to sell petrol in  Dollars only. That is why Americans print their Dollar as legal tender  for debts. This mean if you don't like their American Dollar and go to their Governor and ask for repayment in form of Gold,as in India they won't give you Gold. You observe Indian Rupee, " I promise to pay the bearer..." is clearly  printed along with the signature of Reserve Bank Governor. This mean, if  you don't like Indian Rupee and ask for repayment,Reserve Bank of India  will pay you back an equal value of gold.(Actually there may be minor  differences in the Transaction dealing rules, but for easy comprehension  I am explaining this) Let us see an example. Indian petroleum minister goes to Middle East  country to purchase petrol, the Middle East petrol bunk people will say  that liter petrol is one Dollar. But Indians won't have dollars. They have Indian Rupees. So what to do  now? So That Indian Minister will ask America to give Dollars. American  Federal Reserve will give us dollars by taking Indian Rupees ( according  to exchange rate ) , print Dollars on it and give it to the Indian  Minister. Like this we get dollars , pay it to petrol bunks and buy  petrol. But there is a something wrong here. If you change your mind and want to  give back the Dollars to America we can't demand them to pay Gold in  return for the Dollars. They will say " Have we promised to return  something back to you? Haven't you checked the Dollar ? We clearly  printed on the Dollar that it is Debt" So, Americans don't need any Gold with them to print Dollars. But what will Americans give to the Middle East countries for selling petrol in Dollars only? Middle East kings pay rent to America for protecting their kings and  heirs. Similarly they are still paying back the Debt to America for  constructing Roads and Buildings in their countries. At present the problem of India is the result of buying those American  Dollars. So if we reduce the consumption of petrol and cars, Dollar will  come down

Just try to return a Rs. 1000 note in bank and ask the branch manager to return Rs.1000 worth of gold you will come to know the reality. Currently no country in the world back their currency with Gold including India and US, The gold standard is called Bretton Woods System(goole to know more). Since 1971, Countries around the world have removed this gold standard.. know why?? simple we just don't have enough gold! Every country in world has printed far more currency notes than the gold they hold in their central banks, During the World War 2, countries involved in the war (including India; Yes we were very much involved in WWI and WWII ...FYI . Please Google if you are not aware of India's Contribution in WW2 to the Allies and defeating Hitler.) ...didnt have enough gold to fund the war, so they just printed money without any assets to back the Currency. So after 1971 countries around the world stopped backing their currency with gold. Currently USD is backed by oil not gold. So if you take $100 and go to Saudi Arabia you can get $100 worth of oil , the Saudis would be happy with it, try that with INR .. Well i haven't tried it so i am not sure what would happen. And as far as stop using imported things goes.. we really cant, because we don't import much from US but from China but we pay in $. Indian companies cannot produce products which are cheaper than the chinese even after manufacturing in india and there are some products for which we dont have enough infrastructure or expertise to produce . so we have to import. the one thing we indians can do is to become innovative and start exporting our manufactured goods to outside world this way there will be a balance between the imports and exoprts. Don't believe the crap news posted on FB. some fool would have posted it. Just Google it you will get the reality. for more details

Let us say the Indian Govt exports $100 worth of goods to USA. My understanding is that USA does not repay with hard currency or gold. Nor does any other country. All they make is a book entry. This means that the Indian govt can buy upto $100 worth of goods from US.To go further - let us say company A wants to import $50 worth of goods from US. He can pay equivalent rupees to GOI and get $50 and then import.I believe this is how trade is done between countries. No transfer of hard cash or gold.