Smithsonian Agreement Ppt

President Nixon took the world out of the gold standard in 1971. He feared, however, that free market operations on foreign exchange markets in many currencies would lead to necessity and devaluation. As a result, he convinced many countries to enter into an agreement called the Smithsonian Agreement. This agreement had largely failed since it lasted less than a few years and ended with the total suspension of the foreign exchange markets! The agreement devalued the U.S. dollar by 8.5% against gold and increased the price of one ounce of gold from $35 to $38. Other G10 countries also agreed to revalue their currencies against the U.S. dollar. President Nixon hailed the agreement as “the most important monetary agreement in the history of the world.” The inability of world governments to establish a system in which exchange rates of currencies would be fixed and stable has left no alternative but to have a floating currency market. That is the phase we are going through today. The Forex market, as we know today, is the result of the failure of Bretton Woods and the Smithsonian agreement. Many of the tenacious economic institutions we see today were created as a result of the Bretton Woods agreement. Institutions such as the International Monetary Fund (IMF) and the World Bank were created as a result of this agreement.

This provision seemed weak on paper. But under pressure from real-world markets, it has completely collapsed. The U.S. trade deficit continued to worsen and, as a result, the value of gold rose to $210 in 1972 per ounce. As a result, all G10 members abandoned the Smithsonian agreement. This ended with the closing of forex markets for a while! The Smithsonian Agreement was an agreement negotiated in 1971 between the world`s top ten industrialized countries, namely Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States. The agreement reoriented the fixed exchange rate system established under the Bretton Woods Agreement and effectively created a new standard for the dollar, with other industrialized countries tying their currencies to the U.S. dollar. Fixed exchange rates: The United States persuaded the G10 countries to enter into an agreement in which they would maintain their dollar-linked exchange rates. However, the dollar would not be tied to gold. So it was essentially a Bretton Woods agreement, minus the support for gold.

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