# Why does the gold standard require countries to keep exchange rates fixed?

The gold standard required countries to use monetary policy to keep exchange rates fixed and thus to allow prices, output, and employment to vary as required by the movements of gold and the country’s exchange rate. (A history of the Federal Reserve, volume 1, 1913–1951. Allan H. Meltzer, 2003, The University of Chicago Press. ISBN 0-226-51999-6. Introduction, page 5.)

What established fact is being invoked here? Can you cite a reference that provides instruction about this result? Thank you.

To see why this requires fixed exchange rate lets say that this gold conversion is set in US such that $$\\\1$$ converts into $$1$$ gram of gold. Now suppose EU would set its conversion rate to $$1e = 2g$$ of gold. If the exchange rate would be anything else than $$E=\frac{\\\}{e}=2/1$$ the gold standard would eventually have to collapse in long run.
For example if exchange rate $$E$$ would be $$1$$ (i.e. $$1EUR=1USD$$) then everyone would take their dollars convert them to euros demand gold from European Central Bank to the point when either it would left without any gold to support the gold standard or it would change the exchange rate. If the exchange rate would be higher than $$E=2$$ opposite would happen. Consequently, under gold standard maintaining fixed exchange rate is necessary otherwise it cannot survive due to the fact that under gold standard notes must be convertible into gold.