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Smithsonian Agreement

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.


  • Background 1
  • Development 2
  • See also 3
  • References 4
  • External links 5


The Bretton Woods Conference of 1944 established an international fixed exchange rate system based on the gold exchange standard, in which currencies were pegged to the United States dollar, itself convertible into gold at $35/ounce.

A negative balance of payments, growing public debt incurred by the Vietnam War and Great Society programs, and monetary inflation by the Federal Reserve caused the dollar to become increasingly overvalued in the 1960s.[1] The drain on US gold reserves culminated with the London Gold Pool collapse in March 1968.[2]

On August 15, 1971, President Richard Nixon unilaterally suspended the convertibility of dollars into gold, thus strategically defaulting on the United States debt. His administration subsequently entered negotiations with industrialized allies to reassess exchange rates following this development.

Meeting in December 1971 at the Smithsonian Institution in Washington D.C., the Group of Ten signed the Smithsonian Agreement. The US pledged to peg the dollar at $38/ounce with 2.25% trading bands, and other countries agreed to appreciate their currencies versus the dollar. The group also planned to balance the world financial system using special drawing rights alone.


Although the Smithsonian Agreement was hailed by President Nixon as a fundamental reorganization of international monetary affairs, it failed to encourage discipline by the Federal Reserve or the United States government. The dollar price in the gold free market continued to cause pressure on its official rate; soon after a 10% devaluation was announced on 14 February 1973, Japan and the EEC countries decided to let their currencies float. A decade later, all industrialized nations had done so.[3][4][5]

See also


  1. ^ Blanchard (2000), op. cit., Ch. 9, pp. 172–173, and Ch. 23, pp. 447–450.
  2. ^ "Memorandum of discussion, Federal Open Market Committee".  
  3. ^ Mastanduno, M. (2008). "System Maker and Privilege Taker". World Politics 61: 121.  
  4. ^ Eichengreen, Barry (2011). Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. Oxford:  
  5. ^ Fu, Prof. Wong Ka. "Historial Exchange Rate Regime of Asian Countries". International Economics. The  

External links

  • Britannica
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