The mint parity theory explains how exchange rates between countries on the gold standard were determined. Under this system, currencies were defined by and convertible to a fixed quantity of gold. The exchange rate between two currencies adhering to the gold standard was based on the parity of the mint price of gold in the two countries. This ensured stability in exchange rates as long as countries maintained their commitment to gold convertibility at a fixed price. However, the gold standard broke down in the early 20th century, rendering the mint parity theory obsolete.

1. MINT PARITY THEORY
Under the guidance of
Sundar B. N.
Asst. Prof. & Course Co-ordinator
GFGCW, PG Studies in Commerce
Holenarasipura

2. This theory is associated with the working of the
international gold standard (gold standard operated
between 1880-1914)
Under this system,the currency in use was made of gold or
convertible into gold at fix rate. The value of one currency
unit was definedin terms of certain weight of gold,that is,
how many gains of gold is equal to onedollar or one pound
etc.
The central bank of a country was ready to buy and sell
gold at specific price.
The rate at which the standard currency of country was
convertible into gold was called in mint parity/ mint price
of gold .
INTRODUCTION

5. Mint Parity Theory
When the currencies of two countries are an metallic
standard (gold or silver standard) rate of exchange
between them is determined on the basic of parity of
minorities between currencies of the two countries.
Thus the theory explaining the determination of
exchange between countries which are on the same
metallic standard (say gold coin standard),is known
the Mint Parity Theory of foreign exchange rate.

6. Definition
A commitment to fix the price of domestic
currency in terms of a specified amount of
gold.

7. Example

11. Advantages and Disadvantages
Advantages
• Low transaction cost, since only accounting record need to be kept .
• Pay the role of stable lnternational unit of accounts
• Gold can be for saving, as it is wealth inself.
Disadvantages
the cost of manufacturing gold gradually increased to levels beyond
the official prices.
Countries with persistent trade deficit suffered from recessions
resulting in reduced investments and unemployment.

13. Conclusion
The mint parity theory has been discarded since the
gold standard broke down now. There are neither
free movements of gold parties.

14. Reference
• Mint Parity Theory of Equilibrium Rate of
Exchange/ International Trade - Your Article Library
• Mint parity theory slide share pictures
• Theories of Exchange Rate Determination /
International....