Sangom,
Your malayali colleague was echoing, the still prevalent view of most of india. That during british times, the man in the street, got an honest break from the government.
I consider the whole concept of foreign exchange, to be a matter of faith, since the day, when Nixon told the world, that the usa would no longer freely give out an ounce of pure gold, for 24 dollars, which was the pegged rate. This, after, de gaul of france, almost emptied the fort knox treasury, with his demand for gold, as he no longer believed the u.s. was capable of running a good financial system – what with huge welfare plans (Medicaid, medicare) and the Vietnam war.
Situation is worse today, and technically the usa dolla note should be on par with Bangladeshi taka, with the Chinese yuan on top of the heap. Indian rupee not too bad either. But right from the usa to china, nobody wants to abandon the dolla. As long as this attitude remains, the banks of London and new York, can, and will, continue to work out the rules to their favour. And profit. I think libor was only one of such tools.
Sometimes I think bartering may not be so bad. Our trade with the erstwhile ussr was barter. For an entire crop of mangoes from Andhra, in one year, we got half a dozen mig planes. The only people to get upset with those, were the chennaivasis, who were deprived of banganapalli mangoes for one full season. Today, we do have such deals with iran – in return for petroleum, india ships medicines and food – with the intermediary making huge money, since we have long past the heyday of State Trading Corporation. Incidentally STC was formed precisiely, if I remember right, for the purpose of value bartering, bypassing the whole foreign exchange shenanigans.