Gold standard- Oldest exchange rate regime of INTERNATIONAL MONETARY SYSTEM

 The rate at which the currency of one country is exchanged for the currency of another country is termed as Exchange rate. 

Gold standard/Mint parity theory/mint Exchange rate.(1870 - 1944)

      Three phases can be identified in the evolution of money:

* First phase-Commodity money phase or barter system

*Second phase-Representative money phase or metals phase gold or silver phase.

Third phase-Fiat money phase or paper currencies phase 

            As commodity money was inconvenient, metals were used to represent money. Silver was the first metal to be used to represent money. Later gold was replaced as Representative 💰. 

  In the beginning gold coins 🪙 were used to be exchanged for goods and services. The value of the coin was determined on the basis of the weight of gold in coin 🪙 . Later on the exact correspondence between the value of the coin and its weight was relaxed and gold coins became Representative money.

       Under the gold standard, the value of the domestic currency of a country is stated in terms of weight of gold.The Exchange rate between two currencies depends on the relative weight of gold specified for each currency. The exchange rate is the ratio of weight of gold currencies. This rate was known as mint parity or the mint Exchange rate. The Exchange rate remained constant as it was based on the weight of gold in currencies. Thus the gold standard resulted in a fixed Exchange rate system. 

      During world war I , the warring nations which were following the gold standard regime began to deviate, gradually the system became non functional.