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The Foreign Exchange Rate The history of the International Monetary System begins with the Gold Standard in 1876-1913. During this time, countries set par value for their currency in terms for gold. A gold standard is the system of fixed exchange rates in which the value of currencies was fixed relative to the value of gold and gold was used as the primary reserve asset. (Colander) This era came to be known as the gold standard and gained acceptance in Western Europe in the 1870s. The United States adopted the gold standard in 1879. The gold standard had a simple set of “rules of the game”, and worked until the outbreak of World War I. Because governments agreed to buy and sell gold on demand with any country at the value of each currency in terms of gold, also referred to as the fixed parity rate, the exchange rates were stable. Consequently, countries had to maintain adequate reserves of gold in order for this regime to function. Then, with the outbreak of World War I, trade flows were interrupted. Free movement of gold was also interrupted, and major nations were forced to suspend operation of the gold standard. During World War I currencies were able to fluctuate in terms of gold and each other. Supply and de