is effected by way of debit to the customers’ account or against cheques and not against
Banks and authorized dealers may accept payment in cash upto Rs. 50,000 against sale of
foreign exchange for travel abroad. Where it exceeds Rs. 50,000 the payment should be
by cheque/ debit to the buyer’s account or a demand draft.
•A merchant or a purchaser when he makes a purchase would draw a cheque in payment of
the goods purchased or services availed of.
•This would then be given to the vendor who would take it to the banker on whom it was
drawn and collect the monies due to him.
•As trade developed and individuals began to sell goods in different cities, in other countries
and in multiple currencies, it was no longer feasible for individual sellers to go from one
bank to another to collect their dues.
•It was this that resulted in the birth of clearing and clearing-houses.
•Clearing can be defined as an arrangement through which a bank exchanges cheques drawn
on other banks for those drawn on it.
•This exchange is done at the clearing-house.
–A clearing-house is a place where banks that are members of the clearing-house meet to hand
–The London clearing-house was established between 1750 and 1770 as a place where the clerks
of the bankers of the City of London could assemble daily to exchange with one another the
cheques drawn upon and bills payable at their respective houses.
–At first the clearing-house was simply a place of meeting.
–It came to be perceived that the sorting and distribution of cheques could be more expeditiously
conducted by the appointment of two or three common clerks to whom each bankers clerk could
give all the instruments he wished to collect and from whom he could receive all those payable at
his own house (bank).
–The payment of the balance settled the transaction.
–The settlement was by a payment into or from the account the bank had with the Bank of
–In 1858, the use of the clearing-h