As A Result Of The Smithsonian Agreement The U.s. Dollar Was

The deal devalued the U.S. dollar by 8.5 percent against gold, raising the price of an ounce of gold from $35 to $38. The other G10 countries have agreed to revalue their currencies against the U.S. dollar. President Nixon hailed the deal as „the most important monetary deal in the history of the world.“ The Bretton Woods Conference of 1944 established an international system of fixed exchange rates based on the gold standard, where currencies were pedied to the US dollar, which could be converted into gold at $35/ounce. President Nixon`s decision to „close the golden window“ was the end of the U.S. commitment to set a fixed price for gold. The US dollar was now a Fiat currency. The decisions completed the abandonment of the gold standard that began in the early 1930s, when Congress passed a joint resolution prohibiting creditors from demanding repayment in gold.

The president at the time, Franklin D. Roosevelt, ordered individuals to return to the Federal Reserve gold and gold certificates of high nominal value at a fixed price. The Smithsonian agreement became relevant when President Richard Nixon stopped the exchange of U.S. dollars for gold, which meant the end of the gold standard. With ten leading industrialized countries signing the agreement, the U.S. dollar has become a fiat currency tied to other currencies. The Smithsonian agreement lasted only 15 months because, by 1973, most major currencies had moved from a fixed rate to a variable exchange rate like the US dollar. The insufficiency of gold to meet global demand for international reserves in the 1960s was an important factor that led to the Smithsonian Agreement. But this agreement became mandatory in 1971, when then-US President Richard Nixon banned the exchange of US dollars for gold.

The Smithsonian Agreement was signed by a group of ten countries commonly known as the G10. President Nixon removed the world from the gold standard in 1971. However, he expressed concern that free market operations in foreign exchange markets would bring difficulties and devaluations to many currencies. That`s why he convinced many countries to make a deal called the Smithsonian Agreement. This agreement had largely failed because it lasted less than a few years and resulted in the total suspension of the foreign exchange markets! The Smithsonian Agreement, announced in December 1971, created a new dollar standard in which the currencies of a number of industrialized countries were tied to the U.S. dollar. These currencies were allowed to fluctuate by 2.25% against the dollar. The Smithsonian agreement was put in place when the Group of Ten (G-10) states (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States) raised the price of gold to $38, an increase of 8.5% from the previous price at which the US government had promised to exchange dollars for gold. In fact, the evolution of the price of gold devalued the dollar by 7.9%.

This provision seemed weak on paper….