What is currency?
What is currency? It is just a piece of paper guaranteed its value by somebody who has credibility (like Central bank or RBI).
Now, we Indians may agree to RBI’ s credibility stating value of a piece of paper. If I am from other country, my belief on RBI will be less, right?
So, when a country does business with another country, it needs the guarantee of the value of the piece of paper. That’s why countries had gold (which has universal acceptance of relatively stable value) to replace the currency of the doubting trader. Same thing used to happen during earlier kings all over the world.
Now, international trade is matured and countries trust each other (mostly) to honour the value of their currency. Hence central banks are not burdened with this rule.
But during international financial crisis, this trust in the value of currency reduces. And hence more people trust back gold and buy it. Hence gold price increases during economic crisis. There are other parameters though. But not necessary to discuss with this question.