A State would be following the gold standard if it used gold currency in its foreign and domestic transactions, or if it used domestically a paper money which could be exchanged for gold. This paper money could either be for domestic use and for making payments abroad or solely for making payments abroad, on condition that this exchange for has a fixed price. In other words, it would still be following the gold standard on condition that the paper unit can be exchanged for a specific quantity of gold, at a fixed price and vice-versa. It would be natural in this case for the value of the currency in the country to remain solidly linked to the value of gold. Therefore, if the value of gold rose in comparison with other commodities, the value of the currency in comparison with other commodities would rise as well. If the value of goods decreased in comparison with commodities, the value of the currency would also decrease.

Money based on gold has a special characteristic, reflected in the fact that the monetary unit is linked to gold in a specific amount. In other words it would, by law, consist of a specific weight of gold. The import and export of gold would be freely conducted, and people would be able to freely acquire currencies, gold bullion, or gold dust and be able to export them.

Since gold in this instance would move freely between various countries, every person has the choice of either buying foreign currency, or transferring (i.e. settling in) gold; a person would however opt for the cheaper method. Therefore, since gold and the cost of its transfer would cost more than the price of the foreign currencies in the market, it would then be sensible to use foreign currency instead. However, if the exchange rate exceed that figure, it would be best to take the gold out of circulation and settle with it.