Gold Parity

Gold Parity


(1) The content by weight of pure gold in the national monetary unit as defined by the law of a country. When the gold standard was in effect and there was unlimited exchange of paper money for gold, the price of gold expressed in the national monetary unit corresponded to the weight of the gold content of the unit. For example, if the gold content of the US dollar under the 1934 law, amounted to 0.888671 g of pure gold, then the price of 1 troy ounce (31.1035 g) of pure gold was $35.00. This was also the official price in the world capitalist market of devalued US paper dollars until 1972, when it was set at $38.00. Other capitalist countries fixed the gold content of their currencies by law according to the official exchange rate of their monetary unit in relation to the US dollar and in accord with the International Monetary Fund (IMF).

(2) The ratio of two monetary units calculated on the basis of their legally fixed gold content. According to this meaning, “gold parity” usually takes the place of the term “parity rate,” which indicates the quantity of monetary units of another country having the same content of pure gold by weight as the monetary unit of the given country. For example, a pound sterling contains 2.13281 g of pure gold, and the French franc contains 0.160 g; that is, a pound sterling has 13.33 times more pure gold than a franc. Therefore, the parity rate of a pound sterling and a franc sets £1 equal to 13.33 francs. When the gold standard was maintained, the foreign exchange rates fluctuated within the limits of the gold points. In capitalism’s foreign exchange system established after World War II and regulated by the charter of the IMF, the foreign exchange rates deviated from parity by not more than 1 percent in each direction. Since 1972 the IMF widened the limits of deviation of rates from parity to 2.25 percent up or down. These limits are maintained by operations of the central banks of the capitalist countries.

In the USSR gold parity is established by the state as a matter of planning and serves as a basis for quotations by the Gosbank (State Bank) of the USSR for foreign exchange.


References in periodicals archive ?
But die analogy is misleading, for a gold standard founded on commitments to which sovereign immunity attaches, and therefore no longer bolstered by the private-law sanctions applicable to other banks when they dishonor their promises, is necessarily one in which the commitment to maintain a gold parity ceases to be credible.
The very high gold parity obtained by dividing the MI money stock by the available stock of gold would imply "a large influx of gold from the rest of the world, a large loss of U.
Protecting gold reserves and gold parity of national currencies led to tighter monetary and fiscal policies, then deflation.
Given the fact that Leijonhufvud's analysis coincided with the end of a 89-year period during which the dollar price of gold was adjusted only once, it is hardly surprising that he would not single out a fixed gold parity as the notable feature of Keynes's world.
Thereafter, demand for gold coin and certificates soared, reflecting domestic fear of devaluation and speculative purchases of sterling, as the incoming Roosevelt administration raised doubts about its commitment to the existing gold parity.
If the gold parity was crucially important in explaining Britain's economic problems in the late 1920s, the main impact must have come through government policies to deflate demand rather than through the trade balance itself - through expenditure-reducing policies, not expenditure-switching ones.
This reform brought a return of the pre-war gold parity of the pound.
Though devaluation was possible by raising the gold parity in national currency, it was rare.
What made the classical gold standard work was a particular confluence of circumstances confined to a limited time period and a specific set of countries; these circumstances included the use of economic policy to support the gold parity rather than to foster output and price stability.
Consequently, the resources upon which any one country could draw when its gold parity was under attack far exceeded its own reserves.
6) Although determined to restore the prewar gold parity, the British had to wait for price deflation and sterling appreciation.
The gold parity that would avoid any transitional inflation or deflation is something close to the current price dollar price of gold.