Smithsonian Agreement 1973

The Smithsonian Agreement was an agreement signed in 1971 by ten major industrialized countries to settle international compensation and international trade at this time. The agreement provided for a change in the fixed exchange rates set out in the Bretton Woods Agreement of 1944. When the smithsonian agreement was signed in 1971, it created a new standard for the U.S. dollar, in which the currencies of the other nine countries that signed the agreement were indexed to the U.S. dollar. Reactions to U.S. actions expressed by executive directors on August 16 illustrated the initial reactions of most monetary authorities. There was indeed an atmosphere of crisis. Many executive directors have pressed Mr.

Dale for the intentions of the U.S. authorities, particularly with respect to the exchange rate situation, which would occur immediately, and the import surcharge. Some felt that there was an urgent need to negotiate new values in the coming days. When the Executive Directors took up a draft decision that contained the Fund`s response to the U.S. communication, Dale said that U.S. authorities believed that U.S. measures were essential to create the dynamism of industrialized countries in the form of exchange rate and negotiation measures, which are essential to correct the imbalance in global payments. They therefore preferred that the Fund not make a decision at this stage. Mr. Viénot objected and was surprised that the Fund had only “taken notice” in the draft decision of the actions taken by the United States; He preferred that the Fund express its opposition to the US action, which he said was “a clear deviance from the statutes”. On December 14, President Nixon visited the Azores to meet with French President Pompidou. The two heads of state agreed on the devaluation of the dollar and, as stated in the communiqué issued after their meeting, “the contribution that vigorous implementation of measures to restore wage and price stability and productivity in the United States would contribute to the international balance and defence of the new dollar.” This new public recognition of the need to restore internal cost and price stability has further paved the way for agreement on a reorientation of exchange rates.

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. Nixon`s speech was a success at home and shocked many people abroad, whom they saw as an act of troubling unilateralism; Connally`s strong conduct of subsequent foreign exchange negotiations with his foreign counterparts did little to allay those fears. Nevertheless, after months of negotiations, the Group of Ten Industrialized Democracies (G10) agreed to a new set of fixed exchange rates focused on a devalued dollar in the Smithsonian Agreement of December 1971. Although Nixon was described by Nixon as “the most important monetary agreement in the history of the world,” the exchange rates set by the Smithsonian agreement did not last long. Fifteen months later, in February 1973, speculative pressure on the market led to a further depreciation of the dollar and a new set of exchange rate parities.

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