The gold standard broke down during World War I. it was the domestic standard which is regulate the quantity and growth rate of money supply in a country. Some rules are as under
Rules of Gold Standards
All the coins made of gold. They full bodied coin. Paper money is fully convertible into gold for all types of payment.
Movement of Gold
Inflow and outflow of gold is allowed. Payment can be made in titles to trade (bill of exchange, drafts etc) as well as gold. Govt. does not put any check on the movement of gold.
Co- Relation between Quantity Gold and Quantity of Money
The Quantity of gold is converted into gold coin are equal amount of paper currency is issued. Government does not dump any gold. In case of inflow of gold quantity of money is inflation. In case of out flow of gold the quantity of money deflated.
Free Flexible Economy
Economy is free all the checks. The Govt. does not interfere in the economic life of the people. In case of inflow of gold and the expansion of money, the price of goods and services must rise accordingly vice versa.
Import and export must be free of all the licenses, Quotas, exchange, control tariff (custom duty). In case of gold bullion standard taken coins circulate. Paper currency is not convertible into gold for internal payments. So it is convertible into gold for external payment only with some restriction. Quantity of gold supports the quantity of money. Inflow of gold allowed economy free and international trade without checks.
The central bank buys and sells gold on official rate. Bank of England bought gold at 3 ponds seventeen shillings 9.5 pence per ounas. So in the gold exchange standard, gold place no direct role in and transaction. There taken coin paper money is not convertible. So Paper money can converted into the currency of a country which is on gold standard. Indian rupee taken coin. Paper money was not convertible to gold. Even the Indian rupee could be converted into pounds sterling which wan on gold standard. In this way Indian had gold exchange standard.