In essence, gold parity standard is the modern version of the gold standard. It came into for e with the establishment of the International Monetary Fund (IMF) in 1946. Under this standard, every member country has to define the par value of its currency in terms of gold in order to determine the exchange rate.
The old parity standard aims at maintaining stable exchange rates without interfering into the domestic monetary system of the member countries.
The basic features of the gold parity standard are given below:
1. No Link with Gold:
Under this standard, gold is neither a medium exchange nor a measure of value. The domestic currency comprises paper money and token coins of cheaper metals. The domestic currency is inconvertible into gold coins or gold bars or foreign currency.
2. Par Value of Money:
Every member country has to define .the par values of its money in terms of gold; the par values of different currencies further determine the exchange rates for foreign transactions.
3. Exchange Rate Flexibility:
This standard allows reasonable flexibility in the exchange rates because the member nations can alter the par values of their currencies under the regulations of the IMF.
4. Provisions of Loans:
Under this system, the IMF provides loans in foreign currencies to the member countries to ensure stability in foreign exchange rates.
5. Independent Monetary Policy:
Under this standard, the member nations can follow independent monetary policies in their domestic affairs. The monetary policy of one country has no direct or indirect link with the monetary policy of another country.