# What Is Mint Parity Theory And How Will Its Rate Be Determined?

Mint parity theory explains the determination of exchange rate between the two countries which are a gold standard. In a country which is on gold standard, the currency is either made of gold or is convertible into gold at a fixed rate. There are also no restrictions on the export or import of gold.

The rate of exchange between the gold standard countries is determined on a weight to weight basis of the gold countries of their currencies. In other words, the exchange rate is determined by the gold equivalents of the currencies involved. The mint par is an expression of the ratio of weights of gold's used for the coinage of the currencies. For examples before World War 1 England and American were on gold standard. The mint par between these two countries was pound, one of England+4.866 dollars of America. The rate of exchange showed that one pound of England contained as much fine gold as 4.866 dollars contained in America. The ratio of weights of metal1 pound= \$4.866 was called the mint parity.

The mint par was a fixed rate. It remained so long as the monetary laws of the country remain unchanged. The current or the market rate of exchange, however, fluctuated from time to time due to changes in the balance of payments of the respective countries.
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