Smithsonian Agreement

-April 12, 2021-

Smithsonian Agreement

Mike Burroughs At the afternoon meeting of the Steering Committee on 16 August, the Economic Advisor presented the staff`s thoughts on the relative exchange rates of the currencies of the major industrialized countries. It divided the subject into two parts: (1) the determination of the relative exchange rates of major currencies, a provision that influenced the competitiveness of countries in international transactions and the relative value of reserves held in different currencies; and (2) the link between the exchange rate model and gold, a link determined by the indication of the price of gold in one of the currencies concerned, probably the dollar. The second part concerned the value of gold, DDS and reserve positions in the Fund that were in the form of currencies. The economic advisor stated that, although he was only looking at the issue of relative exchange rates, he felt that it was more likely that an agreement could be reached if the issues relating to relative exchange rates and gold were resolved simultaneously. 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! 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". Almost all of the meeting took place at the executive meeting, with ministers and governors agreeing on a model of exchange rate relations between their currencies.

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