international finance - international monetary system 6-10
DESCRIPTION
International finance - gold standard mint parityTRANSCRIPT
Min
t P
ari
ty T
he
ory
•U
nd
er
this
sys
tem
, th
e c
urr
en
cy in
use
wa
s m
ad
e o
f g
old
or
wa
s co
nve
rtib
le in
to g
old
at
a f
ixe
d r
ate
.
•T
he
va
lue
of
the
cu
rre
ncy
un
it w
as
de
fin
ed
in t
erm
s o
f ce
rta
in w
eig
ht
of
go
ld,
tha
t is
, so
ma
ny
gra
ins
of
go
ld t
o t
he
ru
pe
e,
the
do
llar,
th
e p
ou
nd
, e
tc.
•T
he
ra
te a
t w
hic
h t
he
sta
nd
ard
mo
ne
y o
f th
e c
ou
ntr
y w
as
con
vert
ible
into
g
old
wa
s ca
lled
th
e m
int
pri
ce o
f g
old
.
•If
th
e o
ffic
ial B
riti
sh p
rice
of
go
ld w
as
£6
pe
r o
un
ce a
nd
of
the
US
pri
ce o
f g
old
$1
2 p
er
ou
nce
, th
ey
we
re t
he
min
t p
rice
s o
f g
old
in t
he
re
spe
ctiv
e
cou
ntr
ies.
Th
e e
xch
an
ge
ra
te b
etw
ee
n d
olla
r a
nd
po
un
d w
ou
ld b
e f
ixe
d a
t $
12
/£6
=2
,
•Su
pp
ose
th
e s
hip
pin
g c
ost
of
go
ld f
rom
th
e U
S t
o B
rita
in i
s 5
ce
nts
. So
th
e
US
imp
ort
ers
wo
uld
ha
ve t
o p
ay
$2
.05
pe
r £
1.
•In
th
eo
ry,
all
na
tio
ns
sho
uld
ha
ve a
n o
pti
ma
l ba
lan
ce o
f p
aym
en
ts o
f ze
ro,
i.e
. th
ey
sho
uld
no
t h
ave
eit
he
r a
tra
de
de
fici
t o
r tr
ad
e s
urp
lus.
Go
ld S
tan
da
rd in
op
era
tio
n
•W
ith
th
e o
utb
rea
k o
f th
e F
irst
Wo
rld
Wa
r in
19
14
, th
e in
tern
ati
on
al
tra
din
g s
yste
m b
roke
do
wn
an
d n
ati
on
s va
lue
d t
he
ir c
urr
en
cie
s b
y fi
at
inst
ea
d,
i.e
. g
ove
rnm
en
ts t
oo
k th
eir
cu
rre
nci
es
off
th
e g
old
sta
nd
ard
an
d s
imp
ly d
icta
ted
th
e v
alu
e o
f th
eir
mo
ne
y.
•Fo
llow
ing
th
e w
ar,
so
me
na
tio
ns
att
em
pte
d t
o r
ein
sta
te t
he
go
ld
sta
nd
ard
at
pre
-wa
r ra
tes,
bu
t d
rast
ic c
ha
ng
es
in t
he
glo
ba
l e
con
om
y
ma
de
su
ch a
tte
mp
ts f
uti
le.
•B
rita
in,
wh
ich
ha
d p
revi
ou
sly
be
en
th
e w
orl
d's
fin
an
cia
l le
ad
er,
rein
sta
ted
th
e p
ou
nd
at
its
pre
-wa
r g
old
va
lue
, b
ut
be
cau
se it
s
eco
no
my
wa
s m
uch
we
ake
r, t
he
po
un
d w
as
ove
rva
lue
d b
y
ap
pro
xim
ate
ly 1
0%
. C
on
seq
ue
ntl
y, g
old
sw
ep
t o
ut
of
Bri
tain
, a
nd
th
e
pu
blic
wa
s le
ft w
ith
va
lue
less
no
tes,
cre
ati
ng
a s
urg
e i
n u
ne
mp
loym
en
t.
•B
y th
e t
ime
of
the
Se
con
d W
orl
d W
ar,
th
e in
he
ren
t p
rob
lem
s o
f th
e
go
ld s
tan
da
rd b
eca
me
ap
pa
ren
t to
go
vern
me
nts
an
d e
con
om
ists
alik
e.
Go
ld-E
xch
an
ge
Sta
nd
ard
•Fo
llow
ing
the
seco
nd
wo
rld
wa
r,th
eIn
tern
ati
on
al
Mo
ne
tary
Fun
d
rep
lace
dth
eg
old
sta
nd
ard
as
am
ea
ns
for
na
tio
ns
toa
dd
ress
ba
lan
ceo
f
pa
yme
nts
pro
ble
ms
wit
hw
ha
tb
eca
me
a"g
old
-exc
ha
ng
e"
sta
nd
ard
.
•C
urr
en
cie
sw
ou
ldb
ee
xch
an
ge
ab
len
ot
ing
old
bu
tin
the
pre
do
min
an
t
po
st-w
ar
curr
en
cie
so
fth
ea
llie
dn
ati
on
s:B
riti
shst
erl
ing
,o
rm
ore
imp
ort
an
tly,
the
U.S
.d
olla
r.
•U
nd
er
the
ne
wIn
tern
ati
on
al
Mo
ne
tary
Fun
da
pp
roa
ch,
go
vern
me
nts
ha
d
am
ore
pro
no
un
ced
role
inm
an
ag
ing
the
ire
con
om
ies.
Ide
ally
,
go
vern
me
nts
wo
uld
ho
ldd
olla
rsin
"re
serv
e.
•If
an
eco
no
my
ne
ed
ed
an
infl
ux
of
mo
ne
yb
eca
use
of
ab
ala
nce
of
pa
yme
nts
de
fici
t,th
eg
ove
rnm
en
tco
uld
exc
ha
ng
eit
sre
serv
ed
olla
rsfo
rit
s
ow
ncu
rre
ncy
,a
nd
the
nin
ject
this
mo
ne
yin
toit
se
con
om
y.
•H
ow
eve
r, t
he
y w
ere
exc
ha
ng
ea
ble
fo
r d
olla
rs.
Be
cau
se d
olla
rs w
ere
sti
ll
exc
ha
ng
ea
ble
fo
r g
old
, th
e "
go
ld-e
xch
an
ge
“ st
an
da
rd b
eca
me
th
e
pre
vaili
ng
mo
ne
tary
exc
ha
ng
e s
yste
m f
or
ma
ny
yea
rs.
Pa
pe
r C
urr
en
cy S
tan
da
rd &
Pu
rch
asi
ng
Po
we
r P
ari
ty
•W
ith
th
e b
rea
kdo
wn
of
the
go
ld s
tan
da
rd d
uri
ng
th
e p
eri
od
of
the
Fi
rst
Wo
rld
Wa
r, g
old
pa
riti
es
an
d f
ree
mo
ve
me
nts
of
go
ld c
ea
sed
, th
ere
fore
th
e m
int
pa
r o
f e
xch
an
ge l
ost
sig
nif
ica
nce
in t
he
exc
ha
nge
m
ark
ets
.
•T
he
ba
sic
ide
a u
nd
erl
yin
g t
he
pu
rch
asi
ng
po
we
r p
ari
ty t
he
ory
is
tha
t th
e f
ore
ign
cu
rre
nci
es
are
de
ma
nd
ed
by
the
na
tio
na
ls o
f a
co
un
try
be
cau
se i
t h
as
po
we
r to
co
mm
an
d g
oo
ds
in it
s o
wn
co
un
try.
•Fo
r, w
he
n t
wo
cu
rre
nci
es
are
exc
ha
nge
d,
wh
at
is e
xch
an
ged
, in
fa
ct,
is t
he
inte
rna
l pu
rch
asi
ng
po
we
r o
f th
e t
wo
cu
rre
nci
es.
•th
e P
urc
ha
sin
g P
ow
er
Th
eo
ry (
PP
T)
see
ks t
o e
xpla
in t
ha
t u
nd
er
the
sy
ste
m o
f a
uto
no
mo
us
pa
pe
r st
an
da
rd t
he
ext
ern
al v
alu
e o
f a
cu
rre
ncy
de
pe
nd
s u
ltim
ate
ly a
nd
ess
en
tia
lly o
n t
he
do
me
stic
p
urc
ha
sin
g p
ow
er
of
tha
t cu
rre
ncy
re
lati
ve t
o t
ha
t o
f a
no
the
r cu
rre
ncy
.
Ab
solu
te V
ers
ion
of
Pu
rch
asi
ng
Po
we
r
Pa
rity
•T
he
ab
solu
te v
ers
ion
of
the
pu
rch
asi
ng
po
we
r p
ari
ty
the
ory
str
ess
es
tha
t th
e e
xch
an
ge
ra
tes
sho
uld
n
orm
all
y re
fle
ct t
he
re
lati
on
be
twe
en
th
e in
tern
al
pu
rch
asi
ng
po
we
r o
f th
e v
ari
ou
s n
ati
on
al c
urr
en
cy
un
its.
•To
illu
stra
te t
he
po
int,
let
us
ass
um
e t
ha
t a
re
pre
sen
tati
ve c
oll
ect
ion
of
go
od
s co
sts
Rs.
9,6
25
/-in
In
dia
an
d U
S$ 1
95
in U
SA.
As
pe
r th
e A
bso
lute
PP
P
the
ory
, th
e e
xch
an
ge r
ate
be
twe
en
US$
an
d I
nd
ian
R
up
ee
is t
he
ra
tio
of
two
pri
ce in
dic
es.
•Sp
ot
(in
Ru
pe
e)
= 9
62
5/1
95
= R
s.4
7.5
12
8