A system for fixing exchange rates by the central bank or government of each country making its currency freely convertible into gold at a fixed price. Under this system the par value of exchange rates is set by the amount of each currency that can be obtained for a given quantity of gold. Exchange rates thus cannot shift further from parity than the limits set by the transaction costs of shipping gold between different countries, which is usually a very small percentage of its value. The same applies if gold actually circulates within each country, provided it can be imported and exported freely.