Smithsonian Agreement

For similar uses and terms, see Smithsonian (disambiguation).

Foreign exchange
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Historical agreements
Bretton Woods Conference Smithsonian Agreement Plaza Accord Louvre Accord
See also
Bureau de change Hard currency

The Smithsonian Agreement was a December 1971 agreement that adjusted the fixed exchange rates established at the Bretton Woods Conference of 1944. Although the other currencies were still pegged to the dollar until 1973, the main difference from the previous regime was the abolition of the dollar's convertibility into gold guaranteed by U.S. Treasury, making the dollar effectively a fiat currency.

History

The Bretton Woods Conference of 1944 established an international fixed exchange rate regime in which currencies were pegged to the United States dollar, which was based on the gold standard.

By 1970, however, it was clear that the exchange rate regime was under threat, as the United States dollar was greatly overvalued because of heavy American spending on Lyndon B. Johnson's Great Society and the Vietnam War. The American economy was also coming under serious inflationary pressures due to the aging economic infrastructure.^{[citation needed]}

In response, on August 15, 1971, President Richard Nixon unilaterally suspended the convertibility of dollars into gold, effectively ending the gold standard. The United States then entered negotiations with its industrialized allies to appreciate their own currencies, in response to this change.

Meeting in December 1971 at the Smithsonian Institution, the Group of Ten signed the Smithsonian Agreement. In the Agreement, the countries agreed to appreciate their currencies against the United States dollar.^{[citation needed]}

Although the Smithsonian Agreement was hailed by President Nixon as a fundamental reorganization of international monetary affairs, it quickly proved to be too little and of only temporary benefit.^{[citation needed]} The gold value of the dollar was realigned again in 1973, from $38.02 to $42.22 per ounce. In addition, further devaluation of the dollar occurred against European currencies. The end of the system came in March 1973 when the major currencies began to float against each other, as governments still had difficulties maintaining the exchange rates within the +/-2.25% band stated in the agreement, essentially bringing into effect the floating exchange rate system which determined exchange rates based on the market forces of supply and demand. A few currencies, such as the British pound, had begun to float earlier.^{[citation needed]}

See also

• Floating currency
• Sherman Silver Purchase Act
• United States Mint
• ISO 4217
• Exchange rate
• History of money

External links

• Britannica