Smithsonian Agreement Upsc

The deal devalued the U.S. dollar by 8.5 percent against gold, raising the price of an ounce of gold from $35 to $38. The other G10 countries have agreed to revalue their currencies against the U.S. dollar. President Nixon hailed the deal as «the most important monetary deal in the history of the world.» In December 1971, the Smithsonian Agreement was reached. In this agreement, the dollar was devalued by 35$US the fine ounce of gold to $38. The currencies of other countries appreciated. However, gold`s convertibility has not resumed. In October 1973, the price was raised to $42.22. Once again, the devaluation was insufficient. In the two weeks following the second devaluation, the dollar was left float. The face value of $42.22 was made official in September 1973, long after it had been abandoned in practice. In October 1976, the government formally changed the definition of the dollar; References to gold have been removed from the statutes.

From then on, the international monetary system consisted of purely Fiat money. This provision seemed weak on paper. However, it collapsed under pressure from real-world markets. The U.S. trade deficit continued to rise, and as a result, the value of gold rose to $210 per ounce in 1972. As a result, all members of the G-10 abandoned the Smithsonian agreement. This ended with the forex markets closing for a while! The failure of the world`s governments to establish a system in which the exchange rates of currencies would be fixed and stable left no alternative to a market for currencies free of fluctuation. That is the phase we are in today.

The forex market as we know it today is the result of the failure of the Bretton Woods and Smithsonian agreements. 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 was a temporary 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. . . .

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