A monetary system in which a country's government allows its currency unit to be freely converted into fixed amounts of gold and vice versa. The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between two currencies.
At the turn of the 20th century, many major trading nations used the gold standard to adjust their monetary
supply. However,
it was later abandoned in favor of Keynesian theories.
Under the gold standard system, all participating currencies were convertible based on its gold value. The use of the gold standard would mark the first use of
formalized exchange rates in history.